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ISLAM AND POLITICAL ECONOMY

A Study of the Influence of Religiosity andReligiously Motivated Attitudes on

Macroeconomic Performance in Countries withSubstantial Muslim Presence

Shawky Arif

Thesis submitted for the degree of Doctor of Philosophy

2013

Abstract

This thesis consists of three empirical chapters studying the relationship be-

tween religion and political economy for a sample of countries with substantial

Muslim presence.

Chapter one is a study of the relationship between religiously motivated at-

titudes and FDI for a panel of predominantly Muslim countries over a period of

ten years stretching from 1997 to 2006. Instrumenting for the attitude variables,

I find that countries with more progressive attitudes towards women and higher

levels of openness towards foreigners tend to be more attractive to FDI.

Chapter two examines the relationship between Islam and economic growth for

a panel of countries with substantial Muslim presence over the period 1990-2008.

Using instrumental variables, I show that higher levels of religiosity, measured by

belief and attendance, depress economic growth.

Following up on the findings of chapters two and three, in chapter three I inves-

tigate how different patterns of religious behaviour map onto economically relevant

attitudes for a sample of individuals from predominantly Muslim countries. The

empirical findings suggest that religiosity in predominantly Muslim countries is

associated with conservative attitudes towards women, and intolerance towards

strangers. On the other hand, religiosity is found to be associated with confidence

in state institutions, the respect of law, and pro-market attitudes. Testing for the

influence of September 11 on religiosity, I find that Muslims after 2001 are more

religious.

In this thesis I find that religion negatively influences FDI by encouraging

conservative attitudes towards women and intolerance towards foreigners. These

attitudes are also plausible channels through which the negative influence of reli-

gion on economic growth works. I also find that the pro-market attitudes produced

by religion are another plausible channel through which the negative influence of

religion works. Finally, the increase in religiosity after the September 11 attacks,

ceteris paribus, could plausibly mean that the negative influence of religiosity in

countries with substantial Muslim presence on economic performance would in-

crease.

Contents

Introduction 10

1 Religiously Motivated Attitudes and FDI 17

1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1.2 Review of the Relevant Literature . . . . . . . . . . . . . . . . . . 21

1.2.1 Dolansky and Alon (2008) . . . . . . . . . . . . . . . . . . 23

1.2.2 Guiso et al. (2009) . . . . . . . . . . . . . . . . . . . . . . 27

1.2.3 Summary of the Review . . . . . . . . . . . . . . . . . . . 30

1.3 Explanatory Variables and Data . . . . . . . . . . . . . . . . . . . 32

1.3.1 Internal and External Cultural Openness . . . . . . . . . . 32

1.3.2 Economic and Political Controls . . . . . . . . . . . . . . . 37

1.3.3 Description of the Data . . . . . . . . . . . . . . . . . . . . 42

1.4 Results and Discussion . . . . . . . . . . . . . . . . . . . . . . . . 43

1.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . 50

2 Religious Behaviour and Economic Growth 53

2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

2.2 Review of the Relevant Literature . . . . . . . . . . . . . . . . . . 56

2.2.1 Barro and McCleary: Two Studies . . . . . . . . . . . . . 56

2.2.2 Noland (2005) . . . . . . . . . . . . . . . . . . . . . . . . . 63

2.2.3 Summary of the Review . . . . . . . . . . . . . . . . . . . 70

2.3 Empirical Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . 73



3 Religiosity and Economic Attitudes 87

3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

3.2 Review of Guiso et al. (2003) . . . . . . . . . . . . . . . . . . . . 91

3.3 Empirical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 100


3.4.1 Attitudes in Islam and Christianity . . . . . . . . . . . . . 119

3.4.2 September 11 and Religiosity . . . . . . . . . . . . . . . . 120


Conclusion 125

Appendices 129

List of Tables

1.2 Correlation Matrix: Religiosity and Selected Economic Attitudes . 34

1.3 Summary Statistics of Variables, Year 2005 . . . . . . . . . . . . . 41

1.4 Internal and External Openness, and FDI . . . . . . . . . . . . . 45

2.3 Religiosity and Economic Growth . . . . . . . . . . . . . . . . . . 77

2.4 Various Attitudes Towards Women in Saudi Arabia . . . . . . . . 83

3.1 Summary Statistics of Selected Attitudes . . . . . . . . . . . . . . 101

3.2 Religion and Economic Attitudes in Sunni Countries . . . . . . . 107

3.3 Religion and Economic Attitudes in Shi’ite Countries . . . . . . . 111

3.4 Religion and Economic Attitudes in Sunni and Shi’ite Countries . 116

3.5 September 11 and Religious Behaviour . . . . . . . . . . . . . . . 122

List of Acronyms

EEA European Economic Area

FDI Foreign Direct Investment

GDP Gross Domestic Product

GNP Gross National Product

ISSP International Social Survey Programme

MANCOVA Multivariate Analysis of Covariance

OECD Organisation for Economic Co-operation and Development

TFP Total Factor Productivity

UNCTAD United Nations Conference on Trade and Development

WVS World Values Survey

Acknowledgements

I owe thanks and sincere gratitude to many people who have contributed to

this work and supported me throughout my Ph.D. journey.

I would like to express my great appreciation to my advisors Shaun Hargreaves

Heap and Peter Moffatt. I am indebted to Shaun for the valuable discussions and

the guidance I received. Shaun has throughout been patient, understanding, but

also critical. I also benefited immensely from the comments and advice of Peter,

whom I have known for a number of years as my econometrics teacher. I would

like to thank Bibhas Saha and Eelke de Jong for their comments and feedback.

Among my friends and colleagues at the University of East Anglia, thanks are

due to Heather Elaydi for her help in editing and the interesting conversations that

we had. I also thank Azza Dirar, Ioannis Toutountzis, Michalis Revmatas, Fred-

die Meade, Saeed Alkatheeri, Mani Sasanipour, and Ibrahim Alnahedh for their

companionship and laughter. For motivational and emotional support I would like

to thank Kali.

Members of staff at the School of Economics have been very helpful and were

there to assist me when needed. I am particularly grateful for the assistance given

by Gina Neff and Tracey Oak. I also thank the library staff for the exemplary

service they provide. Thanks are also due to the lovely staff at Cafe Direct for

their good service.

I also feel a tremendous sense of gratitude towards my family who was very

enthusiastic and unconditionally supportive of me. I am extremely thankful to my

wonderful parents, Faiza and Nacer, for believing in my success and giving me the

opportunities to attain it, and for providing me with great affection and support.

I am also grateful to my lovely grandmother, Aisha, and my siblings, Nadia and

Rafik. Without the help and support of my family, I would not be where I am

today. Thank you very much!

Finally, I gratefully acknowledge the financial support from the University of

East Anglia.

أهدي عملي هذاإلى أمي وأبيلتضحياتهماإعترافا بالجميل وإكبارا

This dissertation is dedicatedto my parents

in grateful acknowledgement of their self-sacrifice

Introduction

Growing evidence suggests that religion affects economic outcomes by influencing

individual attitudes and behaviour. Empirical studies have shown that religion,

measured by religious beliefs and attendance, has an influence on a variety of do-

mains of economic activity such as international trade, foreign direct investment

(FDI), and economic growth.

For example, studying the influence of religion on economic growth for a sample

of predominantly Christian countries, Barro and McCleary (2003) and McCleary

and Barro (2006) find that religiosity, measured by beliefs and attendance, has

an influence on economic growth. Trust, which is believed to be influenced by

religion, is found to have an impact on institutions–the fundamental cause of eco-

nomic growth (Acemoglu et al., 2005). Putnam (1993) and La Porta et al. (1997)

argue that hierarchical religions such as Catholicism and Islam tend to be associ-

ated with low levels of trust. La Porta et al. (1997) find that countries with low

levels of trust tend to have “less efficient judiciaries, greater corruption, lower-

quality bureaucracies, higher rates of tax evasion, lower rates of participation in

civic activities and professional associations, a lower level of importance of large

10

firms in the economy, inferior infrastructures, and higher inflation.”1 Using data

for a sample of European countries, Guiso et al. (2009) show that countries with

high levels of bilateral trust tend to trade more and have higher levels of bilateral

foreign investment.

Like trust, individualism, uncertainty avoidance, and power distance are val-

ues that are plausibly influenced by religious beliefs. For example, Vandello and

Cohen (1999) argue that the prevalence of strong religious traditions in the US

South “surely” encourages collectivism. Using a measure of openness developed

by Quinn (1997), de Jong et al. (2006) find that the degree of openness of an econ-

omy depends on the values that the society holds. In particular, societies with

high levels of individualism tend to be associated with high levels of openness.

However, uncertainty avoidance and power distance (i.e. unequal distribution of

power) are negatively associated with openness.

However, the published empirical literature on the relationship between reli-

gion and economic performance has typically considered samples of predominantly

Christian countries. Moreover, these studies have consistently pointed at the nega-

tive influence of Islamic beliefs on economic outcomes. Hence, the natural question

that follows is whether the findings of the literature with respect to the influence of

religiosity in Islam on economic performance hold for samples with larger Muslim

representation.

The present dissertation is an attempt to contribute to the growing debate on

1La Porta et al. (1997), p. 337-38.

11

the relationship between religion and political economy with a focus on countries

with substantial Muslim presence. This thesis consists of three empirical chapters.

Chapter one is a study of the influence of religiously motivated attitudes on FDI.

In chapter two I study the impact of religiosity on economic growth. Chapter three

investigates the relationship between aspects of religious behaviour and attitudes

believed to influence economic outcomes.

In chapter one I investigate the relationship between religiously motivated at-

titudes and FDI for a panel of predominantly Muslim countries. The central

perspective of the chapter is that religion, by influencing individual attitudes and

views, affects FDI performance. The World Values Survey (WVS) is a mega

database offering data on attitudes towards a variety of issues including religion.

Unfortunately, data is available only for a limited number of predominantly Mus-

lim countries. To get around this issue, two measures of attitudes believed to be

influenced by religion are constructed using data from the World Bank database:

external cultural openness and internal openness. The former, derived as the ratio

of the number of incoming tourists to total population, is a measure of tolerance

towards foreigners. Hence, a higher ratio means a higher degree of external cul-

tural openness. The latter variable, equal to the share of seats taken by women

in parliament, is a measure of the extent to which a society embraces progressive

and liberal attitudes towards women. The two variables are found to be signifi-

cantly associated with religiosity. In particular, more religious commitment tends

to map onto more conservatism and less tolerance towards others. Using instru-

mental variables for the openness variables, I find that predominantly Muslim

societies with higher degrees of external and internal openness tend to be more

12

attractive to foreign direct investors.

Exploiting data on religious behaviour from the WVS for a panel of countries

with substantial Muslim presence, chapter two studies the influence of religiosity

on economic growth, measured by the growth rate of real GDP per capita. The

religiosity variables, robust across religions, are measures of whether the individual

is religious, belief in the importance of religion in life, belief in the importance of

God in life, and attending formal religious services. These religiosity variables are

strongly correlated with the attitude variables employed in the FDI chapter. In

particular, more religious commitment tends to be associated with more negative

attitudes towards women and foreigners. To deal with the potential endogene-

ity problem, I use instruments for the belief and attendance variables in order to

isolate the sense of causation from religiosity to economic growth. The empirical

results suggest that higher levels of religious beliefs and attendance are deleterious

to economic growth. Consistent with the findings of the FDI chapter, the negative

association between religiosity and economic growth suggests that higher levels of

religious attendance and belief produce the type of attitudes that negatively influ-

ence economic growth. In this sense, the negative attitudes towards women and

intolerance towards strangers are plausible channels through which the negative

influence of religion on growth works.

The empirical evidence of the FDI and the growth chapters suggest that reli-

gious behaviour in countries with substantial Muslim presence varies across coun-

tries. Moreover, there are indications that different patterns of religious behaviour

are associated with different economically meaningful attitudes.

13

Following up on these findings, the concluding chapter of this dissertation ex-

amines how individual religious behaviour maps onto attitudes that are believed

to have an influence on economic outcomes. Making use of the WVS dataset, I

select seventeen dependent variables measuring economically relevant attitudes.

These variables, gathered in six groups, are measures of attitudes about the role

of women in society, trusting others, confidence in state institutions, the respect of

legal regulations, the market, and tolerance towards immigrants and individuals

from different cultural backgrounds. The dependent variables are regressed on four

measures of religiosity found to have a significant influence on economic perfor-

mance in the growth chapter. These variables are the belief in the importance of

God in life, the belief in the importance of religion in life, and attending religious

services. I also consider a measure of whether the individual is an atheist. The

regression analysis is performed on a sample of individuals from Sunni-majority

countries and replicated for a sample of individuals from Shi’ite-majority countries.

In the final chapter of the thesis, I also examine the influence of the September

11 2001 terrorist attacks (henceforth September 11) on religiosity for Muslims.

September 11 is a major event that had, and still have, serious repercussions for

Muslims around the world. Ever since the attacks, Islam has been associated with

terrorism and even fascism. In retaliation Muslims are reportedly more religious.

The findings of chapter three suggest that in both the Sunni-majority and

the Shi’ite-majority countries religiosity tends to foster conservative attitudes to-

wards women, and intolerance towards immigrants and individuals from different

14

cultural backgrounds. On the other hand, religiosity is found to be associated with

confidence in state institutions and the respect of legal regulations. Furthermore,

in contrast with the findings of Guiso et al. (2003), religiosity in Muslim-majority

countries is associated with pro-market attitudes. With respect to the impact of

the event of September 11 on religiosity, I find that Muslims are more religious

after 2001.

The conservative attitudes towards women and the intolerant attitudes towards

foreigners found to be associated with religiosity in chapter three, are consistent

with the findings of the FDI and the growth chapters. In the FDI chapter I found

that the negative attitudes towards women and intolerance towards strangers map

onto poor FDI performance. These negative attitudes are also plausible channels

through which the negative influence of religion on economic growth works. In

predominantly Muslim countries, religion plays a major role in shaping individual

attitudes towards women and non-Muslims. The dominant Islamic doctrine por-

trays the woman as a weak being, constantly in need for assistance, and, hence,

her role in society has to be limited to what suits her “nature.” With respect

to non-Muslims, while some verses of the Qur’an and passages of the H. adit. talk

positively about non-Muslims, some others address non-Muslims in a remarkably

negative tone. Non-Muslims are described as “infidels,” and Muslims are encour-

aged to dissociate themselves from them. The findings of the thesis suggest that

the negative attitudes towards non-Muslims are dominating.

Another possible channel through which the deleterious effect of religion on

growth works is the “excessive enthusiasm” for the market. The mainstream

15

economic theory advocates the superiority of the market institution in driving

economic prosperity. However, the experience of the late-industrializing countries

suggest that a higher degree of state intervention is desirable. Studying the late-

industrialization of South Korea, Amsden (1992) argues that “when late indus-

trialization arrives, the driving force behind it is a strong interventionist state.”1

Similarly, Chew and Lee (1991) find that the state in Singapore played a central

role in the industrialization of the economy.

Given the negative influence of religion on economic performance suggested

by the findings of the FDI and the growth chapters, the increase in religiosity

caused by September 11, ceteris paribus, could plausibly mean that countries

with substantial Muslim presence would become even less attractive to FDI, and

their performance in economic growth would worsen.

1Amsden (1992), p. 55.

16

Chapter 1

Religiously Motivated Attitudes

and FDI

1.1 Introduction

Previous research on the determinants of FDI has isolated a number of variables

that are central to understanding why certain countries are more attractive to

foreign investors than others. There is a consensus among researchers that sound

economic fundamentals and good-quality institutions are crucial in attracting FDI.

The influence of cultural factors on FDI is, by and large, an area of research

that remains unexplored. This chapter investigates the influence of religiously-

motivated attitudes on FDI in predominantly Muslim countries.

In a fairly recent study, Dolansky and Alon (2008) examine the influence of

religion on Japanese decision to invest overseas. The authors find that religious

17

diversity has a positive influence on Japanese investment decisions. Studying the

influence of trust on FDI for a sample of European countries, Guiso et al. (2009)

find that higher levels of bilateral trust tend to be associated with higher levels of

bilateral FDI. Although trust per se is not a religious attitude, the findings of the

literature suggest that religion has an influence on trust. Putnam (1993) argues

that by discouraging horizontal bonds among individuals, hierarchical religions

discourage the formation of trust. In agreement with Putnam (1993), La Porta

et al. (1997) find that trust tends to be low in countries with hierarchical religions,

such as Catholicism and Islam.

Although La Porta et al. (1997) describe Islam as hierarchical they do not

explain how it is so. It is likely that the authors reach their conclusion by analogy.

That is if Catholicism, which is overtly hierarchical (Putnam, 1993), encourages

distrust, then Islam which is also negatively associated with trust must also be a

hierarchical religion. Although the hierarchical nature of Catholicism is clear and

manifested through the Vatican and other institutions, the hierarchy within Islam

is less obvious and, hence, a clarification is in order.

According to Islamic beliefs Islam has five pillars and Muslims are required

to observe them. In order to perform the rituals associated with these pillars

believers do no need approvals from formal authorities. For example Muslims

need no approvals to observe the month of Ramadan.1 A reading of the Qur’an

suggests that in Islam the relationship between the Muslim and the Deity is di-

rect and there are no intermediaries. However, over the centuries Islam became

1Verse 2:185 of the Qur’an reads “whoever sights [the new moon of] the month, let him fastit; and whoever is ill or on a journey then an equal number of other days.”

18

hierarchical in the sense that a class of clergies emerged (Tarabishi, 2010). The

main occupation of the clergy is to provide interpretations of the scriptures that

legitimize the monarch’s rule and provide individuals with answers and solutions

to daily problems. To this day the role of Muslim clerics is central in shaping be-

lievers’ attitudes towards a variety of issues including attitudes towards the role of

women in society and non-Muslims. Take for example Khomeini’s fatwa1 against

Salman Rushdi. According to the fatwa Rushdi should be killed for his “heretic”

Satanic Verses, and whoever carries out the sentence will be heavenly rewarded.

By his fatwa, Khomeini as a cleric is “interfering” with God’s will. Yet the Qur’an

clearly states that reward and punishment is in the hand of God and no person

can interfere with God’s will.2

Compared to other parts of the world, the performance of predominantly Mus-

lim countries in attracting FDI is relatively poor. For example, according to the

figures of UNCTAD, the stock of FDI per capita of all Arab countries–a predom-

inantly Muslim area, combined, stood at $1,370 in 2008. This is less than the

world average, and about 90 percent less than the Euro Area level.3 Can reli-

giously motivated attitudes explain the poor FDI performance of predominantly

Muslim countries?

The WVS is a database that covers individual attitudes in 87 countries and

1A fatwa (Arabic for verdict or legal judgment) is a legal ruling related to issues involvingreligion.

2For example, verse 14 of chapter 48 of the Qur’an reads: “[...] To God belongs the dominionof the heavens and the earth. He forgives whom He wills and punishes whom He wills. And everis God forgiving and merciful.”

3My own calculations based on the statistics of the UNCTAD database available online athttp://unctadstat.unctad.org.

19

territories on a variety of issues, including religion. The data can be aggregated at

the country level and used in macro-studies. Unfortunately, predominantly Mus-

lim countries are still under-represented, and there is a lack of data for the sample

of countries used in this study. To get around this issue and study the channels

through which religion influences FDI in predominantly Muslim countries, two

variables measuring the degree of progressiveness of the society and its openness

to outsiders are constructed using data from the World Bank database. The first

variable is a measure of tolerance towards foreigners, and shall be called external

cultural openness. This variable is obtained by dividing the number of incoming

tourists by the total population. A higher ratio implies a higher degree of external

cultural openness. The second variable is a measure of attitudes towards women.

This variable can be thought of as a measure of internal openness, that is openness

within the same society, and it is equal to the share of seats taken by women in the

parliament. The two variables are found to be strongly associated with religios-

ity. In particular, more religious involvement, measured by attendance and belief,

tends to be associated with more conservatism and less openness to outsiders. The

two variables are discussed in more detail in section 1.3 below.

The relationship between religiosity and economic performance is believed to

run both ways. If religion by affecting the degree of openness of the society might

have an influence on FDI, it is reasonable to hypothesize that more FDI, by in-

creasing society’s exposure to other cultures leads to less religious intolerance and

conservatism, and hence to more external and internal openness. To deal with the

potential problem of endogeneity, instrumental variables are used to pin down the

sense of causation from religiously-motivated attitudes to FDI performance.

20

The remainder of the chapter is organised as follows. Section 1.2 provides

a review of two studies relevant to the present chapter. Section 1.3 introduces

the variables and describes the data used in the empirical analysis. Section 1.4

presents and discusses the results. Section 1.5 concludes the chapter.

1.2 Review of the Relevant Literature

Schneider and Frey (1985) argue that the decision of a multinational firm to invest

overseas depends on expected higher profitability in the host economy compared

to at home, and on political factors. Hence, the study of the determinants of FDI

should be based on a model that takes into account both economic and political

factors. According to Schneider and Frey (1985), this model, labelled the politico-

economic model of FDI, should include four groups of variables: three of economic

nature and one of political nature. The economic variables are measures of the

internal and external economic conditions in the host economy, along with mea-

sures of the advantages offered by the labour market (e.g. skills). The political

determinants should include variables reflecting the political situation of the host

country such as an index of political instability. It is worth noting that given the

world political context, Schneider and Frey (1985) suggest as a political variable

the amount of aid received from the Soviet block.

Schneider and Frey (1985) estimate four different specifications and find that

the model that includes both economic and political variables gives better results.

The empirical results suggest that countries with good economic fundamentals

21

and enjoying political stability tend to be more attractive to FDI (Schneider and

Frey, 1985).

The findings of Schneider and Frey (1985) are confirmed by other researchers.

For example, in a recent review of the literature on the determinants of FDI, Bloni-

gen (2005) documents that economic factors such as the exchange rate, trade, and

the rate of tax have an influence on FDI decisions. Klein and Rosengren (1994)

find that the depreciation of the exchange rate positively influences FDI in the

United States. Similarly, Kiyota and Urata (2004) find that a depreciation of

the host country exchange rate has a negative influence on Japanese investments

overseas. The authors also find that high exchange rate volatility negatively in-

fluences Japanese investments overseas (Kiyota and Urata, 2004). Using a panel

of eleven OECD countries over a period of 15 years, from 1984 to 2000, and four

measures of corporate tax rates, Benassy-Quere et al. (2005) find that taxation

has a significantly negative influence on FDI decisions.

With respect to political and institutional factors, Blonigen (2005) argues that

factors such as political stability, legal protection, and expropriation risk influence

FDI decisions. Low quality institutions increase the cost of doing business (Bloni-

gen, 2005). These factors, according to Blonigen (2005), are of major importance

in particular for developing countries. Examining the impact of corruption on

FDI, Wei (2000) finds that countries with high levels of corruption are less attrac-

tive to FDI.

Recently the literature on the determinants of FDI has taken new directions.

22

The role of cultural factors is gaining increasing attention. One important dimen-

sion of culture is religion. In two recent studies, the authors examine the influence

of religion and religiously-motivated attitudes on FDI. Dolansky and Alon (2008)

exploit data on Japanese FDI to study the influence of religious tolerance in host

countries on Japanese firms’ decisions to invest. In their study Guiso et al. (2009)

use data on bilateral FDI for a sample of European countries to study the influence

of trust on FDI. Although trust in itself is not a religious attitude, the findings of

the literature (Putnam, 1993; La Porta et al., 1997) suggest that it is influenced

by religion.

In what follows I review the studies of Dolansky and Alon (2008) and Guiso

et al. (2009). To avoid unnecessary repetition, a discussion of the limitations of

the papers is provided at the end of the review.

1.2.1 Dolansky and Alon (2008)

In their study, Religious Freedom, Religious Diversity, and Japanese Foreign Direct

Investment, Dolansky and his colleague examine the question of whether religious

freedom in host countries influences Japanese investments decisions.

To address their research question, Dolansky and Alon (2008) formulate three

testable hypotheses about the relationship between religion and FDI. Hypothe-

sis 1—religious freedom has a positive influence on FDI; hypothesis 2—the exis-

tence of a state religion negatively influences FDI; hypothesis 3—religiously diverse

countries are more attractive to foreign direct investors.

23

For the first hypothesis the authors argue that societies enjoying higher levels

of religious freedom are more attractive to FDI because investors feel safer, and

their property rights and other economically relevant rights are less likely to be

jeopardized (Dolansky and Alon, 2008). The second hypothesis rests on the idea

that countries with state religions are more likely to be intolerant towards other

religions. Hence, these countries are likely to be less tolerant towards foreign in-

vestors who are of different religions. To support their argument, Dolansky and

Alon (2008) report a negative and statistically significant correlation between the

existence of a state religion and a measure of religious pluralism. With respect to

the third hypothesis, Dolansky and Alon (2008) argue that “Barro and McCleary

(2003) conclude that greater diversity leads to greater economic growth. Because

FDI is a key component of economic growth (Drabek and Payne, 2001), it follows

that religious diversity should stimulate FDI.”1 This hypothesis finds support in

the positive correlation that Dolansky and Alon (2008) find between the index of

religious pluralism and investment.

To test for their hypotheses, Dolansky and Alon (2008) consider three religion

variables. The first variable is the Religious Pluralism Index obtained from Barro

and McCleary (2003). The second variable, Religious Freedom Score, is a measure

of the extent to which a society enjoys religious freedom. The data are obtained

from Marshall (2000), and the score ranges between 1 and 7, with 1 referring to

a religiously free country, and 7 referring to the lack of religious freedom. The

third religion variable used in the empirical analysis is a dummy for the existence

of state religion. This variable is obtained from the tabulations of Barrett et al.

1Dolansky and Alon (2008), p. 35.

24

(2001). The dummy takes the value 1 if the country has a de facto state religion,

0 otherwise. In addition to the explanatory religion variables, Dolansky and Alon

(2008) employ two more variables as controls: GNP and cultural distance. Cul-

tural distance is a measure of cultural dissimilarities between countries (Hofstede,

1980; Kogut and Singh, 1988).

The dependent variable used by the authors is the number of investments made

by Japanese firms in each country. After dropping China, an outlier, and Latvia

and Lithuania, because there are no recorded Japanese investments in these coun-

tries, Dolansky and Alon (2008) end up with a sample of 54 countries.

The FDI data used by Dolansky and Alon (2008) cover the period 1986–2001

and they are obtained from the database constructed by the company Tokyo

Keizai. According to the information provided by the company on its website,

Tokyo Keizai Inc. specializes in the publication of business-related materials and

offers database services. The database offers data on overseas investments for a

number of public and private Japanese companies.

The empirical analysis of Dolansky and Alon (2008) consists of two stages.

The authors perform a multivariate analysis of covariance (MANCOVA), then a

regression analysis. The empirical findings are reproduced in Table (1.1) below.

Expectedly, the results of the multivariate analysis suggest a significant influence

of GNP. Furthermore, religious pluralism is positively associated with Japanese

FDI. However, the measures of religious freedom, the existence of a state religion,

and an interaction term between the two variables are insignificant. The findings

25

of the MANCOVA analysis suggest that Japanese investors are more likely to be

attracted by countries with large economies and higher levels of religious diversity.

Table 1.1: Dolansky and Alon (2008)—Religion and Japanese FDI

MANCOVA Regression analysis

Estimated Estimated EstimatedF-statistic coefficient coefficient

(1) (2) (3)

Intercept 2.88* 144.434* -143.779(0.097) (0.089) (0.203)

GNP 106.95** 0.834** 0.767**(0.000) (0.000) (0.000)

Religious pluralism 13.08** 1173.959**(0.001) (0.001)

Religious freedom 1.22(0.276)

State religion 0.03(0.968)

Religious freedom×state religion 0.31(0.736)

R2 0.796 0.72 0.78

Notes: The p-values reported in parentheses. The symbols ** and * mean thatthe coefficient is statistically significant at the 1 and 10 percent level, respec-tively.

In the regression analysis, the authors use the religion variable that is found

to have a significant influence on FDI in the MANCOVA analysis. A measure

of cultural distance from Japan was also considered, but because it proved to be

insignificant in a stepwise procedure it is dropped from the regression (Dolansky

and Alon, 2008). Columns (2) and (3) of Table (1.1) reproduce the results of the

regression.

Expectedly, the empirical findings show that GNP is positively associated with

26

FDI, and it explains 72 percent of the variation in Japanese investments overseas.

Including the index of religious pluralism in the regression increases the overall

explanatory power of the model to 0.78 (from 0.72). According to the results

of the regression, after controlling for market size, religious pluralism explains

6% of the variation in Japanese FDI. Although Dolansky and Alon (2008) fail

to demonstrate any significant influence of the existence of a state religion and

religious freedom on FDI, they find evidence of a significantly positive influence

of religious diversity on Japanese FDI. This impact, however, is small compared

to the influence of the market size gauged by GNP.

As to why the variable state religion has an insignificant influence on FDI,

Dolansky and Alon (2008) argue that this might be due to a measurement error.

Alternatively, the authors argue that the existence of a state religion does not

necessarily mean that the state is repressive of other religious expressions. For

example, Scandinavian countries enjoy a relatively high level of religious freedom

despite the existence of state religion. China, on the other hand, is a country with

no state religion but tends to be repressive of religious expressions (Dolansky and

Alon, 2008).

1.2.2 Guiso et al. (2009)

Although trust per se is not a religious attitude, it has been shown that it is influ-

enced by religion. Putnam (1993) concludes that religion in Italy is hierarchical

because it encourages the “vertical bond” of authority over “horizontal bonds”

with other individuals. La Porta et al. (1997) find that hierarchical religions such

as Catholicism, Orthodox Christianity, and Islam tend to be associated with low

27

levels of trust. Studying the relationship between religion and trust for a sample

of American individuals, Guiso et al. (2006) find that different religious denomi-

nations and different degrees of religious involvement map onto different levels of

trust. In particular, while trust is positively associated with being a Protestant, it

is negatively associated with being a Hindu. Moreover, attending religious services

is found to increase trust (Guiso et al., 2006).

The study of Guiso et al. (2009) examines the influence of trust on FDI for a

sample of country members of the European Economic Area (EEA). Data on trust

are obtained from the Eurobarometer Survey where samples of individuals from

the various countries are asked about the degree to which they trust individuals

from the different country members, including fellow citizens. Each participant is

asked whether she or he has (1) no trust at all, (2) not very much trust, (3) some

trust, or (4) a lot of trust.

Guiso et al. (2009) exploit these data on bilateral trust to see whether the ex-

tent to which the people of country i trust people of country j affects country i FDI

decisions in country j. The dependent variable is FDI originating from country i

in each of the other countries of the EEA. Other controls include press coverage,

common language, and a dummy for shared borders.

Trust can be thought to have a two-way interaction with FDI. With trust con-

sidered as an independent variable, more trust leads to more FDI. However, with

trust regarded as a dependent variable, one could hypothesize that more FDI, by

increasing society’s exposure to other cultures, leads to a higher level of trust.

28

In order to deal with the potential problem of endogeneity, Guiso et al. (2009)

use instrumental variables to isolate the direction of causation from trust to FDI.

The instruments are religious similarities and somatic distance. The somatic dis-

tance is a measure of how ethnically and genetically far apart two nations are, and

it is constructed by using data on height, the colour of the hair, and the cephalic

index (i.e. a measure of the size of the skull).

According to the results of the IV regression reported by Guiso et al. (2009),

trust has a positive influence on FDI. Specifically, for a given pair of countries, a

high level of trust between their peoples leads to a high level of bilateral FDI. Fur-

thermore, having similar legal regulations and press coverage stimulate bilateral

FDI. Expectedly, distance has a significantly negative impact on FDI. Surprisingly

the results of the regression show that sharing the same language and having lin-

guistic common roots are negatively associated with FDI. An interesting result

is the positive influence of the transportation cost on FDI. Guiso et al. (2009)

rationalize this result by appealing to the argument that transportation costs “act

as a barrier to trade, which might induce direct investment as a substitute to

export.”1 It is worth noting that in an GLS exercise, Guiso and his colleagues

find that transportation cost is negatively associated with FDI, suggesting that a

higher cost leads to less bilateral FDI.

Finally it is noteworthy that Guiso et al. (2009) do not use measures of eco-

nomic fundamentals in their study. Classic candidate variables such as market size,

1Guiso et al. (2009), p. 1123.

29

the degree of integration into the world economy, and infrastructure are absent.

1.2.3 Summary of the Review

Dolansky and Alon (2008) study the influence of religion on the decision of Japanese

firms to invest overseas. The authors find that religious diversity in host countries

is positively associated with Japanese decisions to invest overseas. Exploiting data

for a sample of EEA countries, Guiso et al. (2009) find that countries with high

levels of bilateral trust tend to have high levels of bilateral FDI. The two studies,

however, have some limitations. The purpose of this subsection is to highlight

them.

One major problem with Dolansky and Alon (2008) is that the authors do

not use instrumental variables in order to isolate the direction of causation from

religion to FDI. A second issue is the choice of the explanatory variables. With

respect to the religion variables, it is straightforward to notice the strong relation-

ship between religious pluralism, religious freedom, and the existence of a state

religion. The overlap between the three variables raises the question about the

extent to which the three variables are picking up different aspects of religion.

Also, Dolansky and Alon (2008) do not include measures of religious belief and

attendance to control for religious commitment in society. Religious pluralism

does not necessarily mean religious tolerance. A religiously diverse society might

score highly in the pluralism index and be subject to religion-driven tensions.

In their regression analysis, Dolansky and Alon (2008) consider only GNP as a

control variable. Schneider and Frey (1985) and Blonigen (2005) stress the impor-

30

tance of including other explanatory variables measuring the internal and external

performance of the host country, its political stance, and the quality of its institu-

tions. The failure to include additional controls raises the question as to whether

the religion variables are picking up some indirect influence of economic variables

left out of the equation.

The same critique applies to Guiso et al. (2009). The right hand side variables

used in the regression do not include variables that are typically used in similar

studies.

The paper of Dolansky and Alon (2008) studies the relationship between reli-

gion and Japanese investments overseas. On the other hand, the paper of Guiso

et al. (2009) studies the relationship between trust and FDI for a sample of EEA

countries. Hence, the question that arises is whether these findings can be gener-

alized to other parts of the world, and how religiosity and religiously motivated

attitudes other than trust and religious diversity influence FDI.

The aim of the present chapter is to make a contribution to the growing liter-

ature on the influence of religion on FDI by addressing the limitations underlying

the papers reviewed above. Specifically, this chapter investigates the influence of

religiously-driven attitudes on FDI for a panel of predominantly Muslim countries.

Two variables measuring attitudes are considered: internal openness and external

cultural openness. These variables gauge the extent to which the people of a given

country have progressive views about the role of women in society, and the degree

of openness to outsiders. The following section discusses these variables in more

31

detail.

1.3 Explanatory Variables and Data

In Muslim-majority countries attitudes about women and attitudes about strangers

are heavily influenced by religion. The WVS is a mega-dataset offering data on

variables measuring attitudes towards a variety of issues including attitudes to-

wards the role of women in society and attitudes towards strangers. However, for

the sample of countries I am employing in this chapter, data are available only for

some countries. Given the lack of data, two variables measuring attitudes towards

foreigners and women are constructed using the World Bank dataset. The first

variable is derived as the ratio of international tourists to total population, and

shall be called external cultural openness. The second variable is the share of

seats taken by women in national parliaments, and shall be called internal open-

ness (i.e. openness within the same society). These two variables are discussed

in more detail below, along with the economic and political controls used in the

regression.

1.3.1 Internal and External Cultural Openness

The WVS database offers data on religiosity for about 87 countries and territo-

ries. However, only few of the countries of my sample are covered. The World

Bank database, although it covers variables not of religious nature, offers data on

two variables that are strongly associated with religion. The first is the share of

seats taken by women in the parliament. This variable gauges the extent to which

women can assume “non traditional” responsibilities in society. The World Bank

32

database also offers data on the number of incoming tourists. This variable is

weighed by the total population of the country, and it is intended as a measure of

the extent to which a society is open to outsiders.

The pattern shown by the data reported in Table (1.2) suggests that less reli-

gious commitment tends to be associated with more progressive attitudes towards

women and more tolerance towards immigrants. The data on these attitudes are

obtained from the WVS dataset and are the closest to the attitude variables used

in the present chapter, namely internal openness (i.e. share of women in par-

liament) and external cultural openness (i.e. ratio of incoming tourists to total

population). The total number of observations ranges between 41,036 and 46,720

and they are relative to individuals from countries that have more than 50 percent

of the population adhering to Islam.

In predominantly Muslim societies, the extent to which women participate in

public affairs and the degree of openness to non-Muslims are heavily influenced

by religion. The Qur’an, the founding text of Islam, and the body of H. adit., a

compilation of the acts and the sayings of Mohamed, the Prophet of Islam, are

full of verses and passages that are interpreted by influential clerics in ways that

encourage negative attitudes towards the role of women in society and intolerance

towards non-Muslims. By these interpretations the ideal role of the woman is

to be a housewife. With respect to non-Muslims, often described as “infidels,”

Muslims are advised to dissociate themselves from them.

Influential Muslim clerics have created and maintained a situation whereby

33

Tab

le1.2

:R

eligio

sity

an

dS

ele

cte

dE

con

om

icA

ttit

ud

es

Rel

igio

us

God

isR

elig

ion

isA

tten

dA

tten

dp

erso

nim

por

tant

imp

orta

nt

once

aw

eek

once

am

onth

Ath

eist

Id

on

otli

keli

vin

gn

ext

tofo

reig

nw

ork

ers

0.0

90**

0.06

5**

0.10

3**

-0.0

06*

-0.0

39**

-0.0

35**

Yes

,m

enm

ake

bet

ter

pol

itic

ian

sth

anw

om

en0.

055*

*0.

120*

*0.

160*

*0.

010

-0.0

23**

-0.0

19**

Not

es:

Th

ed

ata

are

obta

ined

from

the

WV

Sd

atas

et,

and

they

are

rela

tive

toin

div

idu

als

(Mu

slim

san

dn

on-M

usl

ims)

livin

gin

cou

ntr

ies

that

hav

em

ore

than

50p

erce

nt

ofth

ep

opu

lati

onad

her

ing

toIs

lam

.T

he

tota

lnum

ber

of

ob

serv

atio

ns

isb

etw

een

41,0

36an

d46

,720

dep

end

ing

onth

eav

aila

bil

ity

ofd

ata

for

each

pair

wis

eco

rrel

ati

on

s.T

he

sym

bol

s**

and

*m

ean

that

the

corr

elat

ion

coeffi

cien

tis

stat

isti

call

ysi

gn

ifica

nt

at

the

1an

d5

per

cent

level

,re

spec

tive

ly.

34

many Muslims believe that holding these negative attitudes towards women and

non-Muslims is part of the “correct” understanding of Islam.

Internal openness. The extent to which women participate in politics is an

important indicator, if not the most important, on the prevalence of liberal and

progressive views in predominantly Muslim countries. Women and their rights are

still an issue of debate between conservatives and progressives. Based on a series

of Qur’anic verses and H. adit.s, conservatives are for a limited role of women in so-

ciety. For example, addressing women, verse 33:33 of the Qur’an reads: “abide in

your houses and do not display yourselves as [was] the display of the former times

of ignorance [that is in the pre-Islamic era].”1 This verse along with others are

interpreted and understood in ways to promote the “ideal” woman as a housewife

whose role is limited to raising children, cooking, and running the house affairs. In

a widely circulated book (eleven editions in less than six years), Bakr Abu Zayd,

a Saudi Muslim cleric, argues that given the differences between women and men,

the former are made to work inside the house and the latter are made to work

outside (Abu Zayd, 2005). According to Abu Zayd, campaigners for women rights

in Saudi Arabia and other Muslim-majority countries are part of a conspiracy

orchestrated by the “West” to deviate Muslims from their faith.

On the other hand, the progressive opinion, based on the universal values of

human rights and secular ideologies, is in favour of more rights for women. In this

sense, the increase of women’s political participation is an indicator of the extent

to which a society is moving away from religious conservatism towards embracing

1The Qur’an (2010), chapter 33 verse 33.

35

more progressive and liberal attitudes. This pattern is reflected by the correlations

reported in Table (1.2): less religiosity is associated with more progressive views

towards women.

The variable internal openness equals the share of seats taken by women in

legislative bodies. This variable is expected to have a positive impact on FDI. In

other words, countries enjoying higher degrees of internal openness will be more

attractive to foreign investors.

External cultural openness. The attitudes a population has towards foreigners,

who might be from different religious and cultural backgrounds, might influence

the decision of foreign investors to invest. In this sense, countries with hostile

attitudes towards strangers are expected to be less attractive to foreign investors.

Several texts and passages in the Islamic scriptures are understood in a way

that encourages Muslims to dissociate themselves from non-Muslims and to think

of them as inferior erring beings.1 In some predominantly Muslim countries the

government plays a role in the dissemination of such views. For example, backed

with an ultra-conservative Wahabi ideology, the ruling family in Saudi Arabia

invests in encouraging intolerant and negative views towards non-Muslims. For

example, a middle school textbook published by the Saudi ministry of education

explains that imitating Jews, Christians,2 and “infidels” is harmful to Islam–the

1For Wahabism, an extremely literalistic interpretation of Islam that emerged in the 18thcentury in present-day Saudi Arabia, the category non-Muslims is broad enough to include Shi’iteMuslims.

2Masih. iyun is the way to refer to Christians in Arabic. However, some fundamentalist Mus-lim clerics refer to Christians as Salibiyun, a derogatory term which means “Cross-worshippers.”

36

only and exclusive way to salvation. In Egypt, where about 10 percent of the

population is Christian, Wajdi Ghoneim, a popular Egyptian tele-Islamist, ex-

pressed his joy about the death of Pope Shenouda III. Ghoneim described the late

Shenouda as the head of heresy and proclaimed that Egypt was relieved by his

death.

The variable external cultural openness, which is a measure of the degree of

a country’s openness to the outside world, is equal to the ratio of international

tourists to the total population of the host country. This variable is expected to

have a positive influence on FDI, that is, more open societies are more attractive

to foreign investors.

Islam emerged in the Arabian Peninsula in a population of Arabs and then

spread out into other territories. Hence, it is possible that some aspects of Arab

culture are misattributed to Islam. In order to disentangle the influence of being

Muslim from that of being Arab, a dummy variable, Arab, is considered. The

dummy takes the value 1 if the country is an Arab country, 0 otherwise. I also

consider the Muslim share of the population in the regression.

1.3.2 Economic and Political Controls

Gross domestic product. GDP is a classic economic candidate variable. It proxies

for the market size. Empirical evidence reveals a positive association between the

size of the economy and FDI. Hence, the sign of the coefficient on GDP is expected

to be positive, suggesting that foreign investors are attracted by larger markets.

37

Government consumption. Government consumption refers to the ratio of gov-

ernment consumption to GDP. The ratio is intended as a measure of the involve-

ment of the government in the economy. Hence, the larger the ratio of governments

consumption to GDP the lesser are the opportunities for the private sector. How-

ever, it is equally plausible to hypothesize that the relationship between FDI and

government consumption is positive. This is possible when the government does

not compete with foreign investors, and rather invests in sectors complementary

to FDI.

Trade openness. The popular indicator of trade openness used in the litera-

ture is the share of trade (imports + exports) to GDP. Nevertheless, this measure

of openness is somewhat crude because it might be picking up the country size

rather than economic potential. Frankel and Rose (2002) find that physically large

countries tend to trade less. Following Barro (2001) the trade ratio used in this

chapter is filtered for the estimated relation of this ratio to land area (in log) and

population (in log).

The sign of the coefficient associated with trade openness depends on the type

of FDI. Asiedu (2002) argues that in the case of market-seeking investments (hor-

izontal FDI), foreign investors will prefer higher barriers to entry to keep the com-

petition outside the market. Conversely, for reasons related to transaction costs,

export-seeking FDI (vertical FDI) will favour economies with low trade barriers

and tariffs. On the other hand, Chakrabarti (2001) argues that a high degree of in-

tegration into the world economy is more likely to have a positive influence on FDI.

38

Infrastructure. UNCTAD (2002) argues that a proper measure of infrastruc-

ture should include roads and railway networks, along with telephone infrastruc-

ture. The availability of these facilities is important for foreign investors to coor-

dinate production activity within country and across countries. The inclusion of

these variables also captures the cost of transportation (UNCTAD, 2002). Unfor-

tunately, because of massive lack of data on roads and railways for many countries,

I only consider the number of telephone lines per 100 people, a standard practice

in the literature. Countries with good infrastructure are expected to be more at-

tractive to foreign investors.

Oil and gas. The extraction of oil and gas is an export-oriented activity. This

activity will attract vertical FDI. In this sense, one might hypothesize a positive

relationship between the oil/gas industry and FDI. However, Asiedu and Lien

(2011) hypothesize a negative relationship between natural resources and FDI.

The authors argue that “[w]hile natural resource exploration requires a large ini-

tial capital outlay, the continuing operations demand a small cash flow. Thus, after

the initial phase, FDI may be staggered.”1 In their empirical analysis, Asiedu and

Lien (2011) find a strong negative association between natural resources and FDI.

In order to test for the influence of natural resources on FDI, a dummy variable,

oil/gas exporter, is generated. Any country with fuel exports making 20 percent

or more of its total exports of merchandise is considered as an oil/gas exporting

country. The oil/gas share of exports is computed as an average of the available

data for each country over the sample period. It is not possible to consider the

1Asiedu and Lien (2011), p. 104.

39

actual ratio of fuel exports to total exports because of the massive gaps in the data.

Health. Human capital is controlled for by considering a measure of health

condition. The variable is obtained as the average of the percentage of children

aged 12 to 23 months immunized against DPT1 and measles. A higher share of

children vaccinated against communicable diseases means healthier and more pro-

ductive workers. Alsan et al. (2004) argue that health has a direct effect on labour

productivity: sick workers tend to be frailer and have higher rates of absenteeism.

In their empirical analysis, Alsan et al. (2004) find that health has a significant

influence on FDI.

Democracy index. As the literature indicates, political factors are as important

as economic factors in influencing foreign investors’ decision to invest. Evidence

suggests that political stability and good-quality institutions have a positive influ-

ence on FDI (Wei, 2000; Blonigen, 2005). The study of Busse and Hefeker (2007)

finds that countries enjoying the rule of law and having low levels of corruption

are more attractive to foreign investors. To control for institutions, I consider an

index of democracy. The existence of a functioning democracy is an indicator of

political stability.

Table (1.3) provides a summary statistics of the variables used in the regression

analysis. The figures are relative to the year 2006. The differences between the

minimum and the maximum figures for all variables are significant, and suggests

large disparities between the countries of the sample. For example, in 2006 the

1DPT stands for Diphtheria, Pertussis, and Tetanus.

40

highest stock of FDI per capita recorded was in Bahrain and stood at 10,659.80

dollars. However, the lowest was 11.62 dollars in Niger. With respect to GDP, the

level figures (not reported in the table) show that Turkey’s GDP is 1,330 times

higher than Comoros’s GDP. The trade ratio suggests that some countries are more

integrated into international trade than others. According to the figures reported

in Table (1.3) in 2006 Malaysia had the highest trade ratio, more than 200 percent,

while Pakistan’s trade ratio was the lowest and stood at 38 percent. According

to the reported figures, the average share of women in parliament for the sample

Table 1.3: Summary Statistics of Variables, Year 2006

Variable Obs. Mean S.D. Min Max

Stock of FDI per capita 38 1,406.38 2,617.51 11.62 10,659.80Log of real GDP 38 23.68 1.84 19.78 26.98Government consumption 38 13.31 4.99 4.94 27.96Trade ratio 38 84.81 34.54 38.45 202.58

Infrastructure 38 9.99 8.96 0.20 32.06Health 38 84.20 15.49 40.00 99.00Oil/gas exporter 33 39.06 38.71 0.05 96.95Democracy index 38 2.55 3.24 0 9

Internal openness 36 9.29 6.72 0.00 22.80External openness 35 39.13 128.98 0.13 767.65Muslim share 38 85.93 12.99 53.10 100.00Arab country 38 0.50 0.51 0 1

Notes: Stock of FDI per capita is expressed in real US dollars. Governmentconsumption and Trade ratio are expressed as shares of GDP. Health is theaverage share of infants aged 12 to 23 months immunized against four com-municable diseases, namely DPT and measles. Oil/gas exporter is measuredby the share of oil and gas exports of total merchandise exports. Internalopenness and External openness are, relatively, the share of seats taken bywomen in national parliaments, and the ratio of international tourists to totalpopulation.

41

was about 9 percent. The figures also show that, in 2006, while Tunisia had the

highest rate of internal openness, about 23 percent, Saudi Arabia and three other

countries had no women in their national parliaments. External openness (i.e. the

ratio of international tourists to total population) is another variable where the

difference between maximum and minimum values is considerable. According to

the figures reported in Table (1.3) Bahrain, a Gulf country, had the highest rate

of external openness in 2006 (767.65 percent), while Turkmenistan had the lowest

rate (0.13 percent). Finally, the figures reported in Table (1.3) show that half of

the sample consists of Arab countries and that the average share of the population

adhering to Islam is about 86 percent.

1.3.3 Description of the Data

Data on the variables listed above are collected for a sample of 38 predominantly

Muslim countries, that is countries in which more than 50 percent of the popula-

tion adheres to Islam. The share of the population adhering to Islam varies across

countries of the sample from 53 percent in Chad to a reported 100 percent in Mau-

ritania and Saudi Arabia. The countries are from various geographical locations.

Nineteen countries or 50 percent of the sample are Arab countries (of which 6 are

in the Arabian Peninsula). Seven countries are located in Sub Saharan Africa.

Ten Asian countries or about 24 percent of the sample. Two countries are located

in Europe. The list of countries is reported in Appendix A. Data are collected for

a sample period of 10 years stretching from 1997 to 2006. The total number of

observations is 315.

Data on the economic explanatory variables are collected from the World Bank

42

database. Tajikistan has missing data for telephone lines per 100 people (i.e. in-

frastructure) in 2006. The gap is filled in with the average computed using the

observations relative to the years 2004 and 2005. The data on the stock of FDI

are collected from the UNCTAD database. The democracy index is obtained from

the Polity IV data set constructed by Marshall et al. (2010).1

The data on the share of women in parliament are obtained from the World

Bank dataset, and supplemented with data from the Inter–Parliamentary Union

database.2 For Saudi Arabia, records show that in 2004, in the recently created

non-elected senate, no women was nominated. Prior to 2004 there are no data.

Based on the fact that the participation, if any, of women in politics in Saudi

Arabia is very limited, and that if in 2004 in the newly founded senate there were

no women, then it is plausible to assume that prior to 2004 there was zero chance

for women to be nominated in this body. Thus, gaps are filled in with zeros. The

same procedure is applied to Qatar.

1.4 Results and Discussion

The dependent variable is the stock of real FDI per capita (logged) in the host

country. The motivation behind choosing stocks over flows is that the former is

much less volatile than the latter, especially in small countries where the sectors

that attract FDI are few. In addition to this advantage in working on stocks,

Benassy-Quere et al. (2007) argue that foreign investors reason in terms of world-

wide allocation of output, and hence in terms of stock of capital. The papers of

1The database is available online at http://www.systemicpeace.org.2The database is available online at http://www.ipu.org/wmn-e/classif-arc.htm.

43

Cheng and Kwan (2000) and Benassy-Quere et al. (2007) are example of studies

where the authors use the stock of FDI per capita as a dependent variable.

The stock of FDI per capita is regressed on internal openness (i.e. the share

of women in the parliament) and external cultural openness (i.e. the ratio of in-

ternational tourists to total population). Other controls are also included in the

regression. As discussed above, in order to deal with the potential problem of en-

dogeneity, instrumental variables are used to pin down the sense of causation from

the openness variables to FDI performance. The instruments are the ratio of the

coastline to total borders of the country; a dummy variable equals 1 if religion is

referred to in the constitution, 0 otherwise; the distance in kilometre from Mecca,

Saudi Arabia; a measure of religious pluralism; and dummies for four geographical

locations: Europe, Sub Saharan Africa, Asia, and the Arabian Peninsula. Accord-

ing to the estimated coefficients of the first stage of the IV regression, reported in

Table (A3) in Appendix A, the instruments are very strong for external cultural

openness. However, they are less strong for internal openness. In particular, ex-

ternal openness has two instruments significant at the 1 percent level, and three

instruments significant at the 5 percent level. However, internal openness has only

one instrument, although strongly significant.

The results of the regression are reported in Table (1.4). Column (1) reports

the results of a basic model that includes measures of economic fundamentals

and an index of democracy. Column (2) reports the GLS results of the full FDI

specification that includes both measures of openness (i.e. internal and external).

Column (3) reports the results of the IV regression. Interestingly, the difference

44

Table 1.4: Internal and External Openness, and FDI

GLS GLS IVStock of FDI per capita (logged) (1) (2) (3)

Intercept -7.015** -0.213 0.930(2.290) (2.314) (1.955)

GDP (logged) 0.471** 0.309** 0.218*(0.102) (0.098) (0.085)

Government consumption 0.031** 0.035** 0.052**(0.011) (0.012) (0.018)

Trade openness 0.014** 0.016** 0.007*(0.002) (0.002) (0.003)

Infrastructure 0.038** 0.044** 0.062**(0.012) (0.012) (0.018)

Health 0.012** 0.007 -0.008(0.003) (0.004) (0.007)

Oil/gas exporter -0.228 -0.568 -0.579*(0.411) (0.378) (0.275)

Democracy index -0.083** -0.072** -0.048*(0.018) (0.018) (0.025)

Internal openness 0.012 0.102**(0.006) (0.037)

External cultural openness 0.0003 0.007**(0.001) (0.003)

Muslim share -0.038** -0.028**(0.014) (0.010)

Arab country 1.177** 1.190**(0.394) (0.338)

Wald χ2 229.25** 247.66** 212.08**

Number of observations 358 315 315Number of countries 38 37 37

Notes: Columns (1) and (2): random-effects GLS regression. Col-umn (3): G2SLS random-effects IV regression. The instrumentedvariables are internal openness and external cultural openness. Theinstruments are the coastline as a percentage of total borders of thecountry; a dummy for the existence of a state religion; the distancein kilometre from Mecca, Saudi Arabia; a measure of religious plural-ism; and dummies for the three geographical locations: Sub SaharanAfrica, Asia, and the Arabian Peninsula. The standard errors re-ported in parentheses. The symbols ** and * mean that the coefficientis statistically significant at the 1 and 5 percent level, respectively.

45

between the GLS and the IV coefficients on the attitude variables is large. For

internal openness the IV coefficient estimate is eight times higher than the GLS’s.

For external cultural openness, on the other hand, the difference is even larger.

The IV coefficient estimate is 23 times higher than the GLS coefficient estimate.

As discussed earlier, the relationship between FDI and openness (both inter-

nal and external) is a two-way interaction. The results of the Hausman test show

that the null hypothesis that the difference between the GLS estimates and the

IV estimates is not systematic is rejected. The χ2 statistic of the Hausman test,

reported in Table (A2) in Appendix A, reveals that the difference between the

IV and the GLS coefficient estimates is statistically significant. This means that

there is evidence of endogeneity and that the IV technique should be used.

Column (2) of Table (1.4) reports the results of the GLS estimation without

controlling for endogeneity. According to the results of the GLS regression, the

impact of openness on FDI is statistically not different from zero. However, after

controlling for endogeneity, the IV results reported in Column (3) of Table (1.4)

suggest that internal and external openness have a statistically significant influ-

ence on FDI.

According to the empirical findings, the economic variables, in general, have the

expected signs and are in line with previous findings of the literature. Moreover,

there is evidence that internal and external cultural openness have a significant

influence on FDI, suggesting that culture in general, and religion in particular,

matters.

46

In particular, the results of the regression reported in Column (3) suggest

that the size of the economy, measured by real GDP (in log), and the availabil-

ity of infrastructure have a statistically strong positive influence on FDI. Trade

openness is positively associated with FDI, although the estimated coefficient is

statistically insignificant. Surprisingly, government consumption has a positive co-

efficient, suggesting that countries with higher levels of government spending are

more attractive to FDI. This positive association suggests that the government

does not compete with foreign investors. Government spending, rather goes to

sectors that encourage foreign investment. Health is the average of the percentage

of children vaccinated against four communicable diseases every year. It is a mea-

sure of the health condition of the labour force. According to the results of the

estimation reported in Column (3), health does not seem to have a statistically

significant influence on FDI.

The estimated coefficient on oil/gas has a statistically negative sign. This re-

sult is in agreement with the findings of Mina (2007) and Asiedu and Lien (2011)

who find that natural resources are negatively associated with FDI. Asiedu and

Lien (2011) rationalize this negative relationship by appealing to the argument

that “[w]hile natural resource exploration requires a large initial capital outlay,

the continuing operations demand a small cash flow. Thus, after the initial phase,

FDI may be staggered.”1 However, studying FDI performance for a sample of

African countries, Asiedu (2006) finds a strong relationship between natural re-

sources, measured as the share of fuel and minerals in exports, and FDI.

1Asiedu and Lien (2011), p. 104.

47

Countries with functioning democracies are less likely to experience political

instability. Thus, countries scoring highly in democracy are expected to be more

attractive to foreign investors. Surprisingly, according to the results of the regres-

sion, democracy has a statistically significant negative impact on FDI. A possible

explanation is that changes in governments, although democratic, lead to signifi-

cant changes in policies that negatively affect FDI.

Technically, it is possible that the unexpected negative sign associated with

the democracy index is related to issues involving the construction of the index.

Munck and Verkuilen (2002) provide a critique of the Polity IV indices (among

them the democracy index used in this dissertation). The authors argue that the

Polity IV indices suffer from some shortcomings related to the aggregation proce-

dure and the omission of relevant factors. For example, the eleven dimensions used

to construct the democracy index do not include a measure of participation, such

as the right to vote and the fairness of the voting process (Munck and Verkuilen,

2002).

Now we turn our attention to the variables of interest. The empirical results

suggest that religiously motivated attitudes have a significant influence on FDI

in the host country. Using instrumental variables I find that societies holding

progressive attitudes towards women and culturally open towards foreigners tend

to be more attractive to foreign investors. According to the results of the IV re-

gression reported in Column (3) of Table (1.4), an increase by 1 percentage point

in internal openness, gauged by the share of women in the parliament, ceteris

48

paribus, leads to a 10 percent increase in the stock of FDI per capita. Moreover,

all other variables being held constant, an increase by 1 percentage point in ex-

ternal cultural openness, measured by the ratio of tourists to population, leads

to an increase of the stock of FDI per capita by about 1 percent. These findings

confirm my hypothesis that countries enjoying higher degrees of openness, both

internal and external, are more attractive to foreign direct investors.

According to the figures reported in Table (1.2), religious commitment tends

to be associated with conservative attitudes towards women and strangers. In

particular, individuals who believe in the importance of God and religion in life

as well as individuals self-described as religious tend to think that women are not

as good as men in politics. Also, they are inclined to dislike living next to foreign

workers. However, less religious engagement is found to be associated with more

positive attitudes towards women and tolerance towards strangers. Assuming that

the associations found between religious behaviour and belief, on the one hand,

and the attitudes, on the other hand, reflect cause-effect relationships running

from religiosity to the economically relevant attitudes, then one might argue that

there is a chain whereby religiosity influences individual attitudes towards women

and strangers, which in turn affect FDI.

In several predominantly Muslim countries, hard-line clerics dominate the re-

ligious scene. Their discourse, based on a literalistic interpretation of the Islamic

scriptures, disseminates negative attitudes towards women and encourages anti-

Muslim feelings. Women are very often portrayed as inferior beings, weak, and

constantly in need for assistance from men, obviously. With respect to non Mus-

49

lims, fundamentalist clerics openly refer to them as “infidels” and encourage their

fellow believers to dissociate themselves from them. Over the years with the revo-

lutionization of mass media, influential clerics have established themselves as the

authority in religious matters.1 Hence, the mere opinion of a cleric is understood

by the majority of Muslims not as a possible interpretation of Islamic scriptures,

but as the understanding of Islam. In such circumstances the average Muslim is

lead to believe that holding negative attitudes towards non-Muslims and women

are part of the “correct” understanding of Islam.

The results of the regression reported in Table (1.4), also suggest the existence

of a residual influence of religion captured by the significant coefficient on the

Muslim share of the population. Countries with higher shares of the population

adhering to Islam are less attractive to foreign direct investors. Finally, the results

also show that, on average, Arab countries are more attractive to foreign investors

compared to the rest of the countries of the sample.

1.5 Concluding Remarks

In this chapter I examined the influence of religiously motivated attitudes on FDI

for a panel of predominantly Muslim countries over a sample period of 10 years

stretching from 1997 to 2006. Instrumenting for internal openness and external

1In an interview with Der Spiegel in 2005, Yusuf Qaradawi, an influential Muslim clericsays: “[in Islam] we don’t have a pope; we have the Ulama, [that is] the association of scholars.”Qaradawi adds: “[a] person can’t just call himself an imam or a mufti and hand out fatwas ac-cording to whim. For this position there are clear prerequisites regarding professional experience,academic background and character.” Qaradawi does not deny the existence of an institutionof clergies in Islam. His answers are indicating the existence of a church-like in Islam. The fullinterview with Qaradawi can be found online at http://www.spiegel.de/international/spiegel-interview-with-al-jazeera-host-yusuf-al-qaradawi-god-has-disappeared-a-376954.html

50

cultural openness, respectively measuring attitudes towards women and foreign-

ers, I show that countries with higher degrees of openness are more attractive to

foreign investors. The results also suggest that countries with larger shares of the

population adhering to Islam tend to be less attractive to foreign direct investors.

Moreover, there is evidence that Arab countries, on average, outperform other

predominantly Muslim countries in attracting FDI.

The cultural external openness and internal openness are found to be strongly

associated with measures of religiosity. In particular, individuals who believe in

the importance of God and religion in life are strongly associated with negative

attitudes towards women and intolerance towards foreigners. If we were to assume

that religion produces these negative attitudes, then one might tentatively argue

that there is a chain whereby religiosity in predominantly Muslim countries affects

FDI by influencing individual attitudes towards women and strangers.

Two questions follow from the findings of this chapter. The first question is

whether the insights with respect to FDI also hold for other domains of economic

activity. In particular, the question I ask is whether differences in religious be-

haviour map onto different levels of economic growth. This question is examined

in the following chapter.

The second question follows from the pattern of correlations between religiosity

and the attitude variables. Different patterns of religious behaviour are associated

with different degrees of internal and external openness. The question, then, is

how different patterns of religious behaviour map onto other economically relevant

51

attitudes. The question gains further prominence from the statistically strong neg-

ative association between the Muslim share of the population and FDI found in

this chapter. The statistically significant relationship suggests a residual influence

of religion that is not accounted for by the two measures of openness used in this

study.

To sum up, two questions immediately follow and will be taken up in the

remainder of the thesis. First, do insights with respect to the relationship be-

tween religion and FDI in predominantly Muslim countries also hold for economic

growth? Second, how different patterns of religious behaviour map onto econom-

ically relevant attitudes?

52

Chapter 2

Religious Behaviour

and Economic Growth

2.1 Introduction

The debate over the determinants of economic growth has taken new directions

in recent years. Economists are increasingly interested in the role of religion in

influencing economic growth. In the recently published literature, empirical find-

ings suggest that religion has a significant influence on economic growth (Barro

and McCleary (2003); Noland (2005); McCleary and Barro (2006), for example).

However, these empirical studies have paid little attention to Islam in its con-

nection with economic growth. The purpose of this chapter is to examine the

influence of religious behaviour, gauged by belief and attendance, on economic

growth in countries with substantial Muslim presence.

53

The central argument of the literature is that religion affects economic growth

by influencing individual values and attitudes. For example, a religion that encour-

ages thriftiness, honesty, and cooperation with fellow workers/citizens is expected

to have a positive impact on economic growth. In this respect, houses of worship

play a central role in fostering these attitudes and in playing the role of social

clubs were people congregate. Putnam (2000) and Sacerdote and Glaeser (2001)

argue that places of worship and temples, by fostering networks of relations be-

tween worshippers, play an important role in building social capital. This social

capital, if productive, could have a positive influence on economic performance.

Empirical evidence suggests that different systems of beliefs map onto different

levels of economic growth. La Porta et al. (1997) find that hierarchical religions,

such as Islam, are correlated with low levels of trust. Countries with low levels

of trust tend to be associated with “less efficient judiciaries, greater corruption,

lower-quality bureaucracies, higher rates of tax evasion, lower rates of participa-

tion in civic activities and professional associations, a lower level of importance

of large firms in the economy, inferior infrastructures, and higher inflation.”1 Ac-

cording to Acemoglu et al. (2005), this type of institutions leads to poor economic

performance.

Barro and McCleary (2003) and McCleary and Barro (2006) examine the influ-

ence of religiosity and attendance on economic growth. Instrumenting for religious

belief and attendance, the authors find that higher levels of religious intensity,

measured by belief in hell, lead to higher rates of economic growth. However,

1La Porta et al. (1997), p. 337-38.

54

attending religious services has the opposite impact. Moreover, the authors find

a negative relationship between the Muslim share of the population and economic

growth (Barro and McCleary, 2003; McCleary and Barro, 2006). Using the growth

rate of total factor productivity as a measure of economic development, Noland

(2005) finds that the Muslim share of the population has a positive influence on

growth. It is worth noting that Noland (2005), unlike Barro and McCleary, does

not control for beliefs and attendance.

The negative association found in the literature between Islam and economic

performance is based on samples in which predominantly Muslim countries are

typically under-represented. For example, the findings of La Porta et al. (1997)

are based on a sample of 40 countries with only Turkey, a predominantly Mus-

lim country, and Nigeria being the only other country with a substantial Muslim

presence. Similarly, the negative relationship between the Muslim share of the

population and economic growth found by Barro and McCleary (2003) is based

on a sample with only seven percent are predominantly Muslim countries.

In this chapter I exploit the WVS database to examine the influence of re-

ligious beliefs and attendance on economic growth for a panel of countries with

larger Muslim representation.

The remainder of the chapter is organised as follows. The following section

provides a review of three papers relevant to the present chapter. Section 2.3

introduces the empirical strategy and the data used in the regression analysis.

Section 2.4 reports the results of the regression and discusses the empirical findings.

55

Section 2.5 concludes the chapter.

2.2 Review of the Relevant Literature

In the recently published literature, three papers are of particular relevance to

this chapter. These papers are Barro and McCleary (2003), McCleary and Barro

(2006), and Noland (2005). This section provides a review of the three studies.

At the end of this section a summary review is provided where the limitations of

the studies are highlighted.

2.2.1 Barro and McCleary: Two Studies

Barro and McCleary co-authored two papers: Religion and Economic Growth

across Countries (Barro and McCleary, 2003), and Religion and Economy (Mc-

Cleary and Barro, 2006). In both papers, the authors follow the same empirical

strategy to examine the influence of religion on economic growth. The 2006 pa-

per exploits data for a slightly larger sample of countries, but uses less religiosity

variables. Both studies reach similar conclusions.

Given the similarities in empirical strategies and findings between McCleary

and Barro (2006) and Barro and McCleary (2003), I use “Barro and McCleary”

and “McCleary and Barro” interchangeably to refer to both papers, unless stated

otherwise.

The specifications that Barro and McCleary use in both papers to study the

influence of religion on economic growth can be expressed in the following generic

56

form

Growth = β0 + β1X + β2Religion+ ε (2.2.1)

where Growth is the growth rate of per capita GDP, X is a vector of economic and

political variables, and Religion is a vector of variables measuring the intensity of

religious belief and the frequency of temple attendance. The religiosity variables

used by Barro and McCleary (2003) are belief in hell, belief in heaven, monthly

temple attendance, and seven religious denominations. In the study of McCleary

and Barro (2006), however, the authors use only belief in hell as a measure of

religiosity and eight religion shares of the population.

Acknowledging the potential problem of endogeneity, McCleary and Barro use

instrumental variables to isolate the sense of causation from religion to economic

growth. The instruments are a measure of religious pluralism based on the Herfind-

ahl index for the religion shares; the religion shares of the population; a dummy

variable for the existence of state religion; and an indicator for the regulation of

the religion market.1

Data on belief in hell, belief in heaven, and monthly temple attendance are

collected from the WVS dataset and supplemented by data from the Gallup and

the ISSP surveys. It is worth noting that the ISSP surveys compile data on belief

in hell and belief in heaven in a way different from the WVS. While the WVS fol-

lows a yes/no format to collect the answers to the question of whether the person

believes in hell and heaven, the ISSP survey offers six options: “(1) yes, definitely;

1The regulation of the religion market is measured by a dummy variable that takes 1 if thestate appoints the religious leaders in the 1970s, 0 otherwise.

57

(2) yes, probably; (3) no, probably not; (4) no, definitely not; (5) can’t choose,

don’t know; and (6) NA, refused.” Barro and McCleary do not explain how they

accommodate the ISSP data on belief to the WVS data.

Barro and McCleary (2003) exploit data from the first three waves of WVS.

In the first wave, 1981-1984, 38 countries are observed; in the second wave, 1990-

1993, 41 countries are observed; and in the third wave, 1995–1997, 39 countries

are observed. The authors use the second wave of the WVS (1990-1993) which

covers slightly more countries compared with the two other waves as a reference

to compile the attendance and religiosity data. For countries with missing ob-

servations in 1990-93, Barro and McCleary (2003) use data from the other WVS

waves to fill in the gaps. If the WVS waves do not offer data to fill the gaps,

the authors use the data on a similar variable from the ISSP and the Gallup sur-

veys. McCleary and Barro (2006) follow the same procedure in the compilation

of data on religiosity, although there is a fourth WVS wave considered in the study.

The strategy of waves followed by the WVS in conducting the surveys makes it

more suitable to consider relatively short periods of growth. Nonetheless, in both

studies Barro and McCleary consider three periods of 10 years each: 1965-1975,

1975-1985, and 1985-1995. This means that the religiosity variables sometimes

postdate the dependent variable. Although Barro and McCleary (2003) acknowl-

edge this problem, they argue that this should not pose a problem since religiosity

is relatively stable over time.

The dependent variable is the growth rate of real per capita GDP over the

58

three 10-year periods: 1965-1975, 1975-1985, and 1985-1995. Data on GDP per

capita are obtained from the Penn World Tables. Data on the socio-economic

explanatory variables are compiled from the World Bank database. McCleary and

Barro also include in the regression analysis an indicator of democracy obtained

from the Freedom House dataset.

For some explanatory variables data are collected as values at the start of each

period (e.g. GDP per capita, and the rate of male secondary school attainment).

For other explanatory variables, such as the share of investment to GDP and the

share of government consumption to GDP, data are calculated as averages for each

of the three 10-year periods.

In Table (2.1) below, I reproduce the results of Barro and McCleary (2003).

It should be noted that the authors only report the results relative to the religion

variables. Other control variables are included in the regression but their coeffi-

cients are not shown.

The findings of Barro and McCleary (2003) suggest that religion has a statisti-

cally significant influence on economic performance measured by economic growth.

In particular, attending formal religious services once a month has a negative im-

pact on economic growth. Barro and McCleary (2003) rationalize the negative

relationship by appealing to the argument that spending time in religious services

takes resources away from the economy.

With respect to the cognitive dimension of religion, there is evidence that be-

59

Tab

le2.1

:B

arr

oan

dM

cC

leary

(2003)

—B

elief

an

dA

tten

dan

ce,

and

Econ

om

icG

row

th

(1)

(2)

(3)

(4)

(5)

(6)

Mon

thly

atte

nd

ance

-0.0

095*

**-0

.015

6***

-0.0

104*

**-0

.012

3***

-0.0

092*

**-0

.015

4***

(0.0

018)

(0.0

044)

(0.0

023)

(0.0

043)

(0.0

020)

(0.0

046)

Bel

ief

inh

ell

0.0

094*

**0.

014*

**0.

0104

***

0.01

74**

(0.0

025)

(0.0

058)

(0.0

040)

(0.0

083)

Bel

ief

inh

eave

n0.

0069

**0.

0076

-0.0

012

0.00

39(0

.002

9)(0

.004

8)(0

.004

0)(0

.006

8)E

aste

rnre

ligi

onsh

are

-0.0

10.

003

-0.0

13(0

.011

)(0

.009

)(0

.012

)H

ind

ush

are

-0.0

34**

-0.0

3-0

.04*

*(0

.016

)(0

.017

)(0

.018

)Jew

ish

share

-0.0

040.

006

-0.0

06(0

.014

)(0

.013

)(0

.015

)M

usl

imsh

are

-0.0

32**

-0.0

12-0

.034

**(0

.015

)(0

.010

)(0

.015

)O

rth

od

oxC

hri

stia

nsh

are

-0.0

5**

-0.0

29-0

.051

**(0

.021

)(0

.017

)(0

.021

)P

rote

stant

shar

e-0

.015

**-0

.018

**-0

.012

(0.0

07)

(0.0

08)

(0.0

08)

Oth

erre

ligio

nsh

are

-0.0

01-0

.001

-0.0

01(0

.015

)(0

.016

)(0

.015

)

Nu

mb

erof

cou

ntr

ies

4141

4141

4141

Nu

mb

erof

ob

serv

atio

ns

118

118

118

118

118

118

Note

s:T

he

stan

dard

erro

rsre

port

edin

par

enth

eses

.T

he

sym

bol

s**

*an

d**

mea

nth

atth

eco

effici

ent

isst

ati

stic

all

ysi

gnifi

cant

atth

e1

and

5p

erce

nt

leve

l,re

spec

tive

ly.

60

lief in hell and belief in heaven have a positive influence on economic growth.

According to the results of the estimation, belief in hell has a statistically signifi-

cant influence on economic growth across the various specifications. On the other

hand, belief in heaven is only significant in one specification, where the religion

shares and belief in hell are excluded. A comparison of the magnitude of the co-

efficients show a larger coefficient on belief in hell. According to the authors, this

is an “indication that the fear of hell is more potent for economic growth than is

the prospect of heaven.”1

The results of the regression suggest that the belief and attendance variables

do not account for the total effect of religion. Some residual influence is picked

up by the religious groups. According to the estimated coefficients, the Hindu,

the Muslim, the Christian Orthodox, and the Protestant shares of the population

have a statistically significant negative influence on economic growth. While the

Muslim share of the population has a lesser negative impact on economic growth

than the Hindu and the Christian Orthodox shares, it has a stronger negative

impact than the Protestant share of the population.

To sum up, the findings of Barro and McCleary suggest that while some as-

pects of religiosity have a negative influence on growth, others have the opposite

impact. McCleary and Barro argue that the overall influence of religion “depends

on the extent to which a rise in attendance leads to greater beliefs.”2 It also

depends on the extent to which belonging to a particular denomination implies

observance. Marchisio and Pisati (1999) find that while 90 percent of the sur-

1Barro and McCleary (2003), p. 779.2Ibid.

61

veyed Italians define themselves as Catholics, only 54 percent reported that they

believe in Catholicism without reservations. The findings of Marchisio and Pisati

(1999) suggest that people might associate themselves with a certain system of

beliefs, without necessarily meaning an adherence to the same model of religiosity.

McCleary and Barro (2006) replicate the 2003 exercise for a slightly larger sam-

ple of countries, in which Muslim-majority countries are still under-represented.

Compared to the 2003 study, McCleary and Barro (2006) use monthly temple

attendance and belief in hell as a measure of religious belief. It is likely that the

authors dropped belief in heaven from their 2006 study because it shows less ro-

bustness compared to belief in hell in the 2003 paper (see Table (2.1) above).

The empirical strategy of McCleary and Barro (2006) follows Barro and Mc-

Cleary (2003). The instrumental variables used to isolate the effect of religion on

economic growth are similar to those used in the 2003 paper: a measure of reli-

gious pluralism constructed from the religion shares of the population and derived

as 1 minus the Herfindahl index; the religion shares of the population; a dummy

variable for the existence of state religion; and an indicator for the regulation of

the religion market. The instrumented variables are monthly temple attendance

and belief in hell.

Like in the study of Barro and McCleary (2003), McCleary and Barro (2006)

find that attending a temple once a month has a negative influence on economic

growth, while believing in hell has a positive influence. Results also suggest that

the Muslim and the Protestant shares of the population have a negative influence

62

on economic growth. Furthermore, agreeing with Barro and McCleary (2003),

McCleary and Barro (2006) find that the Muslim share of the population has a

stronger negative influence on economic growth compared to the Protestant share.

In one specification, McCleary and Barro (2006) exclude the attendance and belief

variables, and only include the religion shares of the population. According to the

results of the regression, the coefficient on the Protestant share remains negative

and significant. By contrast, the coefficient on the Muslim share of the population

becomes insignificant. The results of the regression also suggest that adhering to

Hinduism has a positive influence on economic growth.

2.2.2 Noland (2005)

Noland (2005) examines the influence of religion on economic growth with a fo-

cus on Islam. The author estimates a set of specifications that can be expressed

generically as in (2.2.1). The dependent variable, measuring growth, takes two

forms: the growth rate of per capita GDP, and the growth rate of total factor

productivity (TFP). It should be noted that unlike Barro and McCleary, Noland

(2005) does not control for attendance and beliefs. He only uses the religion shares

of the population. To simplify the exposition of Noland’s findings, in what follows

I refer to the specification where the dependent variable is the growth rate of per

capita GDP as the per capita regression. However, when the dependent variable

is the growth rate of TFP, the specification is referred to as the TFP regression.

The paper of Noland (2005) consists of three parts. Part one, which is rather

general, examines the impact of religion on economic growth. Various religious

groups are employed, including the Muslim share of the population. In part two

63

the author focuses on Islam by examining the question of whether Islam is a drag

on growth. In part three, the author examines the impact of religion on growth

in three countries with substantial Muslim presence. These countries with their

respective shares of the population adhering to Islam are Ghana (15.90), India

(13.40), and Malaysia (60.40).

Religion and Economic Growth

Using data for a cross section of countries, part one of Noland’s paper estimates a

model of economic fundamentals along with seven religious shares of the popula-

tion. The religious groups are Muslims, Hindus, Buddhists, Orthodox Christians,

Catholics, Jews, and Protestants. The dependent variables are the growth rate

of GDP per capita over 1970-1990, and the growth rate of TFP over 1973-1984.

According to the empirical results, the estimated coefficients on the economic vari-

ables have the expected signs. In particular, initial GDP per capita is negatively

associated with economic growth, suggesting that the countries of the sample

exhibit convergence conditional on the other variables. Moreover, both capital

accumulation, measured by the ratio of investment to GDP, and education are

positively associated with economic growth.

With respect to religion, only two religious groups out of the seven included in

the regression have a significant influence on economic growth, measured by the

growth rate of GDP per capita. According to the results of the regression, both

the Catholic and the Protestant shares of the population have a negative influ-

ence on economic growth. The results for the other religious groups, including the

Muslim share of the population, are insignificant. In the TFP regression none of

64

the religion shares is significant.

Next, Noland (2005) studies the influence of religion, always measured by the

religion shares of the population, on economic growth for a longer period of time.

The dependent variable is the growth rate of GDP per capita, calculated over a

period of 86 years, stretching from 1913 to 1998. In the absence of conventional

economic variables, Noland (2005) uses latitude, Nobel laureates per capita, and

a democracy indicator. The sample size consists of 34 countries, including Turkey

the only Muslim-majority country.

According to the results of the regression, religion has a positive influence on

economic growth. The coefficients associated with the Buddhist and the Orthodox

Christian shares of the population are statistically significant and have positive

signs. Furthermore, there is evidence, though statistically weak, that adhering to

Catholicism and Protestantism has a positive influence on economic growth.

To sum up, with respect to Islam, part one of the study of Noland (2005) finds

a statistically insignificant influence of the Muslim share of the population on

economic growth. It is noteworthy that this result is in agreement with Barro and

McCleary (2003) and McCleary and Barro (2006) who find that after excluding

the attendance and belief variables, the impact of the Muslim share is statistically

not different from zero.

65

Islam and Economic Growth

In part two, Noland (2005) looks into the question of whether Islam has a nega-

tive influence on economic growth. Two dependent variables are considered: the

growth rate of TFP over the period 1973-1984, and the growth rate of per capita

GDP over the period 1970-1990. The sample consists of a cross section of coun-

tries and the total number of observations is 50 for the TFP specifications, and

78 for the GDP per capita specifications.

In the regression analysis, the author considers the Muslim and the Arab shares

of the population. The Arab share of the population is included in the regression

to disentangle any influence of the Islamic faith from that of Arab culture. The

two variables are considered in two different forms: as simple shares of the popula-

tion, and as the shares of the population weighed by the distance between Mecca

and the capital city of each country in the sample. Noland (2005) argues that di-

viding the Muslim share of the population by the distance proxies for the various

interpretations of Islam and the variety of Islamic beliefs across countries. On the

other hand, weighing the Arab share of the population by the distance between

Mecca and the capital city controls for the attenuation of Arab and Middle East-

ern culture taken by Arabs to other territories as Islam spread out.

Table (2.2) below reproduces the results of the regression as reported by Noland

(2005). It should be noted that Noland does not include the Muslim and the Arab

shares of the population together in one equation, he rather considers them sepa-

rately.

66

Tab

le2.2

:N

ola

nd

(2005)—

Th

eM

usl

iman

dth

eA

rab

Sh

are

sof

the

Pop

ula

tion

,an

dE

con

om

icG

row

th

TF

PT

FP

Gro

wth

Gro

wth

TF

PT

FP

Gro

wth

Gro

wth

197

3-19

8419

73-1

984

1970

-199

019

70-1

990

1973

-198

419

73-1

984

1970

-199

019

70-1

990

Inte

rcep

t-1

.210

-0.5

820.

147

0.41

3-0

.225

0.20

00.

668

0.73

6(-

1.2

2)(-

0.59

)(0

.20)

(0.6

0)(-

0.23

)(0

.19)

(0.9

7)(1

.05)

Init

ial

GD

Pp

erca

pit

a-0

.001

***

-0.0

01**

*-0

.000

***

-0.0

00**

*-0

.001

***

-0.0

01**

*-0

.000

***

-0.0

00**

*(-

2.8

6)(-

3.01

)(-

3.88

)(-

3.88

)(-

3.01

)(-

3.08

)(-

3.87

)(-

3.80

)In

vest

men

tsh

are

0.0

400.

041

0.07

6***

0.07

5***

0.03

60.

040

0.07

2***

0.07

4***

(1.1

1)

(1.1

3)(3

.08)

(3.0

4)(1

.01)

(1.1

3)(2

.93)

(3.0

0)G

over

nm

ent

shar

e-0

.043

*-0

.070

-0.0

25-0

.033

-0.0

76-0

.103

*-0

.039

-0.0

42(-

1.0

0)(-

1.42

)(-

1.01

)(-

1.31

)(-

1.59

)(-

2.00

)(-

1.52

)(-

1.58

)O

pen

nes

s-0

.011

-0.0

10-0

.004

-0.0

03-0

.010

-0.0

11-0

.004

-0.0

04(-

1.0

3)(-

1.00

)(-

0.52

)(-

0.44

)(-

1.02

)(-

1.11

)(-

0.51

)(-

0.5)

Ed

uca

tion

0.0

22**

*0.

856*

**0.

597*

**0.

576*

**0.

813*

**0.

817*

**0.

562*

**0.

541*

**(2

.10)

(2.9

2)(3

.82)

(3.7

3)(2

.95)

(3.0

2)(3

.71)

(3.5

8)N

etoi

lex

port

er0.

526

0.38

10.

232

0.21

90.

210

0.52

60.

075

0.23

2(0

.65)

(0.4

5)(0

.40)

(0.3

8)(0

.25)

(0.6

5)(0

.13)

(0.4

0)

Mu

slim

0.0

22**

0.01

3(2

.10)

(1.6

6)M

usl

im/D

ista

nce

29.9

08*

15.1

50(1

.88)

(1.5

2)A

rab

0.04

2**

0.02

4*(2

.30)

(1.8

8)A

rab

/d

ista

nce

48.3

93**

20.8

74*

(2.5

5)(1

.74)

R2

0.2

30.

280.

30.

310.

260.

280.

310.

31N

um

ber

ofO

bse

rvati

on

s50

5078

7850

5078

78

Note

s:T

he

t-st

atis

tics

rep

ort

edin

par

enth

eses

.T

he

sym

bol

s**

*,**

,an

d*

mea

nth

atth

eco

effici

ent

isst

atis

tica

lly

sign

ifica

nt

at

the

1,

5,an

d10

per

cent

leve

l,re

spec

tive

ly.

67

According to the results of the estimation, initial GDP per capita has the

expected negative sign, suggesting that the countries of the sample exhibit con-

vergence. The ratio of investment to GDP and education have positive coef-

ficients, suggesting that more capital accumulation and more schooling lead to

more growth.

Regarding the influence of culture on economic growth, the empirical results

show that the Muslim and the Arab shares of the population are only significant

in the TFP regressions. According to the estimated coefficients, countries with

larger Muslim and Arab populations tend to be associated with good economic

performance measured by the growth rate of TFP.

Islam and Economic Growth: Country Level Analysis

In the third and final part of his study, Noland (2005) examines the influence of

Islam on economic performance at the country level. Three countries with sub-

stantial Muslim presence are selected. The countries with their respective Muslim

share of the population are Ghana (15.9), India (13.4), and Malaysia (60.4).

For the Indian case, the author considers two specifications. In the first one

the dependent variable is the growth rate of TFP over a period of 20 years, from

1973 to 1993. In the second specification the dependent variable is the growth rate

of GDP per capita over a period of 15 years, from 1981 to 1996. The explanatory

variables consist of a set of economic variables along with six religious groups,

including the share of the population adhering to Islam.

68

According to the results of the estimation, adhering to Buddhism and Jainism

has a statistically significant positive impact on economic growth, measured by

the growth rate of per capita income. The influence of the Muslim share of the

population is not statistically different from zero. In the TFP regression, however,

none of the religion shares has a statistically significant influence.

Like India, Malaysia is a religiously diverse country. Statistically, about 60

percent of Malaysians are Muslims and Islam is the religion of the state. After

controlling for economic factors, the results of the regression suggest that Islam

and Buddhism, measured by their respective shares of the population, have a neg-

ative influence, although statistically weak, on economic growth in Malaysia. It

is worth mentioning that the significance of the Muslim share of the population

improves once the economic controls are excluded from the regression.

The last case in the country-level analysis is Ghana. According to the results

of the regression, there is a positive relationship between the Muslim share of the

population and economic growth. This suggests that areas with larger Muslim

shares of the population tend to outperform other parts of the country.

To sum up, in the country-level analysis evidence on the influence of Islam is

mixed. Measured by the Muslim share of the population, Islam has a positive

influence on economic growth in Ghana, whereas in Malaysia its influence is nega-

tive. With respect to India, the Muslim share of the population has a statistically

insignificant impact on economic growth.

69

2.2.3 Summary of the Review

In their 2003 and 2006 studies, Barro and McCleary examine the influence of re-

ligious beliefs and attendance on economic growth for a panel of predominantly

Christian countries. Instrumenting for the religiosity variables, the authors find

that religious belief leads to higher levels of economic growth, whereas attending

religious services has a deleterious effect. Running regressions on cross-country

and within-country data, Noland (2005) finds that religion, measured by the reli-

gion shares of the population, has an influence on growth, measured by the growth

rate of per capita GDP and the growth rate of TFP. According to the findings of

Noland, Islam, when it influences economic growth, has a positive impact.

However, the three studies have some limitations. All studies use samples

of countries that are predominantly Christian, and predominantly Muslim coun-

tries are relatively under-represented. Hence, the natural question that follows is

whether the findings of the literature hold for a sample with larger Muslim repre-

sentation.

With respect to Noland (2005), the author uses the religion share of the popu-

lation as the sole measure of religion. Noland (2005) does not use any measures of

religious behaviour, such as temple attendance and religious beliefs. The problem

with the religion share is that it is too broad to be analytically meaningful.

A further issue with Noland (2005) is the econometric handling of the Mus-

lim and the Arab shares of the population. In his examination of whether Islam

is a drag on growth (results reproduced in Table (2.2) above), Noland does not

70

consider a specification where both variables, the Muslim and the Arab shares of

the population, are included. This is a serious problem since it is unknown which

variable is doing the explanatory work.

The use of the growth rate of TFP as a measure of economic growth is prob-

lematic. An examination of the results reproduced in Table (2.2), above, show

that the Muslim share of the population is only significant in the specifications

where the dependent variable is the growth rate of TFP. It is well known that the

TFP observations are obtained as estimates, and, hence, subject to the produc-

tion function used, its underlying assumptions, and the right hand side variables

employed. It is questionable, then, whether the growth rate of TFP is a reliable

measure of economic performance.

Compared to Noland (2005), who does not include measures of attendance and

religious intensity in his study and does not control for endogeneity, the studies of

Barro and McCleary represent more rigorous attempts to examine the influence of

religion on economic growth. Unlike Noland (2005), Barro and McCleary (2003)

and McCleary and Barro (2006) consider measures of religious engagement along

with the religion shares of the population.

However, the strategy followed by McCleary and Barro in compiling the data

on religiosity and the choice of the belief variables suffer from some limitations.

Based on the assumption that religious behaviour is relatively stable over time,

Barro and McCleary (2003) and McCleary and Barro (2006) aggregate the data

on attendance and beliefs from the different waves of the WVS, with levels geared

71

towards 1990-1993.

The argument about the stability of religious behaviour over time is question-

able. Maalouf (1998) argues that people tend to emphasize the dimension of their

identity that they feel is most threatened. Studying discrimination against Mus-

lims and Islamophobia after September 11, Sheridan (2006) finds that there is

a widespread feeling among Muslims that there is an increase in discrimination

and racism. Racism, discrimination, and the association of Islam with terrorism,

fuelled the feeling among Muslims that Islam is targeted. In retaliation, Muslims,

reportedly, became more religious. In their book The Muslim World After 9/11,

Rabasa et al. (2004) report that the Tunisian society became more religious after

2001. Similarly, “The Arab Muslim American Federation of New York reported

that, after 9/11 attacks, Muslim attendance at New York City mosques doubled.”1.

More recently, after the toppling of Ben Ali in Tunisia, the country has “witnessed

a surge of religiosity within society following the liberation of mosques and the

support of religious freedom.”2

Another issue with the studies of McCleary and Barro is the choice of the belief

variables. Barro and McCleary (2003) and McCleary and Barro (2006) use belief

in heaven and belief in hell as measures of religiosity. These beliefs are not robust

across religions. In some faiths, such as Hinduism and Buddhism, the process of

salvation and damnation takes forms other than heaven and hell. In this sense,

not believing in hell and heaven does not mean any less religious commitment.

1Abu Ras et al. (2008), p. 1562Ghanmi, M. (2012). Religiosity on the Rise in Post-Revolution Tunisia. Magharebia (Media

Report), 3 August.

72

In this chapter I address the issues outlined above, and investigate the influence

of religion of economic growth for a panel of countries with substantial Muslim

presence. More than sixty percent of the countries of the sample have 50 percent

or more of the population adhering to Islam. The following section outlines the

empirical strategy.

2.3 Empirical Strategy

Following Barro and McCleary, I estimate a specification that can be expressed

as in (2.2.1), namely

Growth = β0 + β1X + β2Religion+ ε

where Growth stands for growth rate of real GDP per capita, X is a vector of

economic and political variables, and Religion is a vector of variables measuring

religious behaviour. The model, above, is estimated for a panel of countries with

substantial Muslim presence.

Over the years more Muslim-majority countries are covered by the WVS.

Nonetheless, these countries are still under-represented and their total number

remains relatively small. In order to maximize the number of observations, coun-

tries with a Muslim share of the population of 10 percent and more are selected.

The total number of countries in the sample is 27 and the sample period covers

four waves of 5-years each stretching from 1990 to 2010. Nevertheless, because

not all countries are observed each wave the total number of observations is 50.

73

The sample consists of five Arab countries, that is 18 percent of the sam-

ple size. Seven countries, that is 26 percent of the sample, are located in Sub-

Saharan Africa. Nine countries, that is one third of the sample, are located in

Asia. Twenty-two percent of the countries of the sample had Soviet-style govern-

ments in the past. Countries with a Muslim share of the population of 50 percent

and more represent about 63 percent of the sample. The list of the countries is

reported in Table (B1) of Appendix B.

Since 1990 the WVS surveys are conducted every five years. The strategy

followed by WVS makes it natural to compile data on the dependent variable,

economic growth rate, over relatively short periods. In the present study, I con-

sider four 5-year periods: 1990-1995, 1995-2000, 2000-2005, and 2005-2010.

In the growth literature there is no conventional way of choosing the length

of the growth periods. For example, Gregorio (1992) uses periods of six years.

Beck et al. (2000) and Choe (2003) use periods of five years. Barro and McCleary

(2003) and McCleary and Barro (2006) use periods of ten years.

The findings of the previous chapter suggest that Islam is not monolithic,

and that there is a variety of Islamic beliefs that map onto different attitudes

towards women and foreigners. In particular, being a religious person, believing

in the importance of religion and God in life tend to be associated with intoler-

ance towards strangers, and negative attitudes towards women (Table (1.2) in the

previous chapter). In this chapter I consider the same religiosity variables and a

74

measure of temple attendance to control for religious behaviour across countries.

The individual-level data collected by the WVS are aggregated to the country

level for each of the four variables measuring religious behaviour. Barro and Mc-

Cleary (2003) and McCleary and Barro (2006) use attending once a month as a

measure of temple attendance. In the present study, I instead consider attend-

ing once a week. Muslims believe that attending Friday prayers at the mosque is

compulsory. Thus, weekly attendance is a better measure of religious commitment.

The attendance and belief variables are included in the regression along with

economic and political controls. Following Barro and McCleary, the economic and

political variables are initial GDP per capita–that is the values of per capita in-

come in 1990, 1995, 2000, and 2005; the average ratio of investment to GDP over

each period; the average inflation rate over each period, the average ratio of trade

to GDP filtered for country size (land and population); a measure of the output

of the research and development sector (following Romer (1990)); the value of the

index of democracy in the beginning of each period, that is in 1990, 1995, 2000,

and 2005. The dependent variable is the growth rate of real GDP per capita over

the four periods: 1990-1995, 1995-2000, 2000-2005, and 2005-2010.

The relationship between religion and economic growth raises the classic prob-

lem of endogeneity. With religion viewed as an explanatory variable, one might

hypothesize that religion by influencing individual attitudes affects economic out-

comes (Weber (1905), for example). However, with religion considered as a de-

pendent variable, it is plausible to argue that different levels of wealth map onto

different religious behaviour (Iannaccone (1990), for example). To isolate the di-

75

rection of causation from religion to economic growth, I use instrumental variables.

The instruments are a dummy variable for Soviet past; a measure of religious plu-

ralism; the distance in kilometres between the capital city of each country and

Mecca, Saudi Arabia; and dummy variables for three geographic locations: Asia,

Europe, and Sub-Saharan Africa.


The results of the regression are reported in Table (2.3) below. According to the

empirical findings, initial GDP per capita has the expected negative coefficient

suggesting that the economies of the sample exhibit convergence conditional on

the other variables. The results also suggest a statistically significant positive

association between capital accumulation and economic growth. The estimated

coefficient on inflation is strongly significant and has a negative sign, suggesting

that sound monetary policies stimulate economic growth.

According to the estimated coefficient, trade openness, measured by the ra-

tio of exports plus imports to GDP filtered for the country size (population and

land area), does not have a significant influence on economic growth. This result

suggests that openness to international trade has a mixed influence on economic

growth. There is evidence in the empirical literature that international trade is

not always beneficial. According to the Singer-Prebisch hypothesis, the impact

of international trade on economic growth depends on what countries specialize

in. The hypothesis states that specializing in the exportation of raw materials

and primary commodities deteriorates the terms of trade (Singer, 1950). Study-

76

Table 2.3: Religiosity and Economic Growth

Growth Rate (1) (2) (3) (4)

Intercept 10.940** 9.640* 11.388** 10.559**(3.932) (4.444) (4.137) (3.562)

Initial GDP per capita -1.006* -0.503 -0.72 -0.788(0.495) (0.450) (0.428) (0.426)

Investment 0.081 0.129* 0.116* 0.114*(0.055) (0.060) (0.053) (0.052)

Inflation -0.028** -0.028** -0.032** -0.032**(0.005) (0.005) (0.005) (0.005)

Trade openness 0.0002 -0.001 0.0002 -0.004(0.009) (0.010) (0.009) (0.009)

R & D 0.003 -0.005 0.0005 0.002(0.005) (0.006) (0.004) (0.004)

Democracy index 0.015 -0.097 0.007 -0.029(0.123) (0.158) (0.123) (0.123)

Attendance (once a week) -0.035*(0.017)

Belief Religious Religion is God isperson important important-0.051 -0.060* -0.052*(0.035) (0.029) (0.022)

Muslim share -0.002 -0.007 0.007 0.011(0.011) (0.012) (0.013) (0.013)

Arab country -0.168 -0.734 -0.09 0.040(1.121) (1.267) (1.125) (1.113)

Wald χ2(9) 52.04** 40.33** 51.93** 54.75**

Number of Observations 50 50 50 50Number of Countries 27 27 27 27

Notes: G2SLS IV regressions. The instrumented variables are the attendanceand belief variables. The instruments are a dummy variable for Soviet past; ameasure of religious pluralism; the distance in kilometres between the capitalcity and Mecca, Saudi Arabia; dummy variables for the three geographic lo-cations Asia, Europe, and Sub-Saharan Africa. The standard errors reportedin parentheses. The symbols ** and * mean that the coefficient is statisticallysignificant at the 1 and 5 percent level, respectively.

77

ing the Jamaican case, Gafar (1995) finds that the deterioration of the terms of

trade between 1972 and 1986 led to an annual loss of about 1.5 percent of GDP.

More recently, exploiting historical data going back to 1650 on the prices of 25

commodities, Harvey et al. (2010) find that eleven commodities exhibit a decline

in their prices over the whole sample period or over some parts of it.

The results of the estimation show that the research and development activity

is positively associated with economic growth, although the estimated coefficient

is statistically insignificant. The coefficient on the democracy index is statistically

insignificant. The insignificance of the coefficient suggests that democracy has a

mixed influence on economic growth. It is also possible that the insignificance of

the coefficient on the democracy index is due to technical issues related to the

construction of the index (Munck and Verkuilen, 2002).

Now we turn our attention to the attendance and belief variables. The results

of the regression reported in Table (2.3) suggest a statistically significant influence

of attendance and beliefs on economic growth. The religion variables I employ are

self description as religious, the importance of religion in life, the importance of

God in life, and attending religious services once a week. It is worth noting that

the religiosity variables used in this chapter differ from the belief variables used

by Barro and McCleary (2003) and McCleary and Barro (2006). Barro and Mc-

Cleary use belief in hell and belief in heaven as measures of religious intensity.

These variables are not robust across religions. In some systems of beliefs, the

salvation and the damnations processes take forms other than heaven and hell.

Hence, not believing in hell and heaven does not mean any less religious commit-

78

ment.

In Column (1), only the attendance variable (once a week), is included in the

regression. In Columns (2) to (4), only variables measuring religiosity and belief

are used. It should be noted that I also considered specifications where both the

belief and attendance variables are included. However, the results are statistically

insignificant. It is likely that the high correlation between the two dimensions of

religiosity cause multicollinearity. Results are reported in Table B2 of Appendix B.

According to the results of the estimation reported in Table (2.3), there is

evidence that high levels of religious involvement, measured by attendance and

beliefs, are associated with low economic performance, measured by the growth

rate of per capita GDP. In particular, there is a negative association between

attending religious services once a week and economic growth, suggesting that

higher rates of temple attendance lead to lower economic performance.

This result is in agreement with the findings of Barro and McCleary (2003)

and McCleary and Barro (2006). In both studies, the authors find that temple

attendance has a negative influence on economic growth. McCleary and Barro

rationalize the negative association between attendance and economic growth by

appealing to the way attendance detracts from spending time on economically

productive activities. Alternatively, one might argue that attending religious ser-

vices negatively influences economic growth by deepening and stressing the type

of attitudes that are deleterious to economic growth.

79

With respect to the cognitive dimension of religion, that is belief, the results of

the regression reported in Columns (3) and (4) suggest that too much religiosity

leads to low economic growth. In particular, countries with high shares of indi-

viduals for whom religion and God are important in life tend to have low rates of

economic growth. By contrast, the results of the regression reported in Column

(2) suggest that self-description as religious has a statistically insignificant influ-

ence on economic growth. Finally, according to the results of the estimation the

Arab and the Muslim shares of the population are statistically insignificant.

My findings in this chapter are consistent with the findings of McCleary and

Barro. Using a sample with little Muslim representation, Barro and McCleary

(2003) and McCleary and Barro (2006) find a negative relationship between the

Muslim share of the population and economic growth. By contrast, my findings

relative to a sample with a larger Muslim representation suggest that the influ-

ence of the Muslim share of the population is statistically not different from zero.

However, there is a statistically significant negative influence of belief and atten-

dance on economic growth. In other words, the negative coefficient on the Muslim

share of the population found by McCleary and Barro is plausibly picking up the

negative influence of belief and attendance on growth in countries with substantial

Muslim presence found in this chapter.

With respect to the influence of religious belief on growth, my findings are

in disagreement with those of Barro and McCleary. While Barro and McCleary

(2003) and McCleary and Barro (2006) find that belief in hell has a positive in-

fluence on growth, I find that believing in the importance of God and religion

80

in life has a deleterious effect on growth. Unless we were to assume that belief

in hell, as a measure of religious intensity, is somehow picking up something dif-

ferent compared to the belief in the importance of God and religion in life, one

could argue that compared to Christian-majority countries, religiosity in countries

with substantial Muslim presence produces the sort of attitudes that are inimi-

cal to economic growth. In fact, the correlations reported in Table (1.2) above

show a strong association between religiosity and intolerance towards immigrants

and conservative attitudes towards the role of women in society. Consistent with

the findings of the previous chapter, the negative attitudes towards women and


influence of religion on economic growth works in countries with substantial Mus-

lim presence.

Throughout this chapter the discussion has focused on how religion could plau-

sibly affect economic growth by influencing individual attitudes. Religion might

also have an influence on social capital and trust building. The way individuals

interact with each other and the type of network of relationships they create (for

example, whether these networks are inclusive or exclusive of the Other) might

have an impact on social relations and plausibly on economic performance. Re-

ligion might have an even greater impact if the attitudes that it generates are

institutionalized. For example, if discrimination against women and anti-Muslim

feelings are built into state institutions such as the judiciary and the educational

system, then religion might have a doubly negative impact on economic perfor-

mance.

81

The figures reported in Table (3.4) are measures of various attitudes towards

women in Saudi Arabia in 2003. The data suggest a strong bias against women

in the Saudi society. According to the data about 70 percent of Saudis agree that

men should be prioritized when jobs are scarce, and think that being a house-

wife is as fulfilling as working for a pay. The data also suggest that three in four

Saudis think that university is more important for boys than girls.1 In Saudi

Arabia individuals may have negative attitudes towards the role of women in so-

ciety, but official institutions such as the educational system reinforce these type

of attitudes. Hamdan (2005) argues that “[w]omen’ issues in Saudi society and

the gender inequalities that are obvious in its education system are institutional-

ized.”2 This dynamic has created a situation whereby any state-led reforms that

aim at granting more rights for women are faced with opposition. “Indeed, the

opening of official schools for girls [in Saudi Arabia were] met with fervent oppo-

sition. Non-religious education of girls was considered useless and even, according

to certain conservative religious scholars, dangerous.”3

Religion still plays a central role in people’s lives in several societies–including

predominantly Muslim societies. For many, as Marx wrote over a 150 years ago,

1Despite the overwhelming conservative majority suggested by the figures reported in Table(2.4), the results of a survey reported by Hamdan (2005) suggest an ongoing struggle in Saudisociety between women rights advocates and conservatives. “In his study (1975) entitled Percep-tion of Female Students from the Countries of the Arab Gulf, Al Kotob interviewed 519 femalestudents. He notes that 79 percent of his respondents agreed strongly that women should havethe same opportunities as men, 70 percent insisted that Master’s and Doctorate level degreesare suitable for women in the Gulf region, and 80 percent indicated that university educationshould be co-educational. With regards to marriage, 94.8 percent of the participants supportededucation prior to marriage. In relation to the subjects of study available to women, 94.2 percentagreed that women should not be confined to certain subjects and should be able to study inany field.”

2Hamdan (2005), p. 45.3Ibid., p. 50.

82

Table 2.4: Various Attitudes Towards Women in Saudi Arabia in 2003

Agree Disagree N

When Jobs are scarce, men should be prioritized 69.7 8.6 1,480University is more important for boys† 74.6 25.4 1,425Men make better politicians than women† 61.9 38.1 1,447Being a housewife is as fulfilling as working for pay† 68.8 31.2 1,396Wife must obey† 81.3 5.4 1,494

Notes: Figures are expressed in percentage.† Agree (disagree) is the sum of the percentages of individuals who strongly agree(strongly disagree) and individuals who agree (disagree).Data source: WVS database.

religion is “the general theory of this world, its encyclopedic compendium, its logic

in popular form, its spiritual point d’honneur, its enthusiasm, its moral sanction,

its solemn complement, and its universal basis of consolation and justification.”1

Hume (1757) argues that “[t]he primary religion of mankind arises chiefly from

an anxious fear of future events.”2 Similarly, Freud (1927) claims that man in his

search for protection against alien forces created God. According to Freud belief in

God is a collective neurosis caused by the longing for a father–a protector. Echo-

ing Freud, La Barre (1972) writes that “a god is only a shaman’s dream about his

father.”3 Religion helps humans to handle uncertainty, and this is perhaps what

keeps it in high demand in many societies.

The sample period I use in this study covers four waves. However not all

countries are observed in all waves. Depending on the availability of data on

the religion variables, the distribution of countries per number of observations is

1Marx (1843), p. 131.2Hume (1757), p. 61.3La Barre (1972), p. 19.

83

as follows: all countries of the sample are observed once–though not in the same

wave; 36 countries are observed twice; only four countries are observed three times;

and 16 countries are observed four times. In order to check whether results are

driven by the countries that are observed more than others, I rerun the regressions

reported in Table (2.3) for the sub-sample of countries observed two times and

the sub-sample of countries observed four times. Obviously it is not possible to

perform this exercise on the sub-sample of countries observed three times, and

this is due to the limited number of observations. The results of the regressions

are insignificant and they are reported in Tables (B4) and (B5) of Appendix B.


Exploiting data from the WVS database, this chapter has studied the influence of

religion on economic growth for a panel of countries with substantial Muslim pres-

ence. The religiosity variables are measures of whether the individual is religious,

believe in the importance of God in life, believe in the importance of religion in

life, and whether she or he attends formal religious services once a week. The

data on these variables are aggregated to the country level. Economic growth is

measured by the growth rate of real GDP per capita over four periods of five years

each, namely 1990-1995, 1995-2000, 2000-2005, and 2005-2010.

Instrumenting for the belief and attendance variables, I find that higher levels

of religiosity lead to lower levels of economic performance. In particular, countries

with higher levels of temple attendance are associated with lower rates of economic

growth. Moreover, countries with high shares of the population believing in the

84

importance of God and religion in life tend to have poor economic performance.

According to the estimated coefficients, attending religious services once a week

is found to have the strongest negative influence on economic growth, followed by

the belief in the importance of God in life, and the belief in the importance of

religion in life.

With respect to the influence of temple attendance on growth, the findings of

this chapter are in agreement with the findings of Barro and McCleary. However,

there is a disagreement over the influence of religious belief. In this study I find

that higher levels of religiosity lead to lower rates of economic growth. This sug-

gests that religiosity in countries with substantial Muslim presence produces the

type of attitudes that stifle economic growth.

My findings in this chapter are consistent with the findings of the previous

chapter. In the first chapter, I find that higher levels of religious engagement are

associated with conservatism towards women and intolerance towards foreigners.

I also find that these types of attitudes are deleterious to FDI. In this chapter, I

find that higher levels of religious engagement map onto lower rates of economic

growth. Hence, the negative attitudes towards women and intolerance towards

foreigners are plausible channels through which the negative influence of religion

on growth works.

An interesting question that follows and will be taken up in the following

chapter is whether there are other attitudes through which religion influences eco-

nomic performance. Specifically, how do different patterns of religious behaviour

85

in predominantly Muslim countries map onto economically relevant attitudes?

86

Chapter 3

Religiosity

and Economic Attitudes

3.1 Introduction

In chapter one of this dissertation the empirical evidence suggests that differ-

ent levels of openness (both internal and external) map onto different levels of

FDI performance. In particular, low degrees of openness lead to poor FDI perfor-

mance. I also find that higher levels of religiosity are associated with lower degrees

of openness. In chapter two the empirical results show that religious belief and

attendance have a negative influence on economic growth. Internal openness and

external cultural openness that are found to be associated with religiosity are plau-

sible channels through which the negative influence of religion on growth works.

Following up on these findings, the question that this chapter asks is whether

there are other economically relevant attitudes influenced by religion that could

87

explain the negative influence of religion on economic performance. Specifically,

I investigate the way in which different patterns of individual religious behaviour

in predominantly Muslim countries map onto economically relevant attitudes.

Studying the relationship between cultural values and the stock market, de Jong

and Semenov (2002) find that masculinity and uncertainty avoidance are positively

associated with stock market development. In masculine cultures, people favour

competition and values such as “the importance of showing off, of performing, of

achieving something visible, of making money, of ‘big is beautiful’.”1 However, in

feminine societies there is a tendency to emphasize equality and solidarity. The

values that make a society feminine (or masculine) are found to be associated

with religion. Studying the influence of religion on economically relevant atti-

tudes, Guiso et al. (2003) find that different patterns of religious behaviour and

different belief systems map onto different economically relevant attitudes such

as competition and income differences. Muslims, for example, tend to have anti-

market attitudes. Also, they tend to be intolerant towards immigrants and other

races, and have conservative attitudes towards the role of women in society (Guiso

et al., 2003).

However, the findings of Guiso et al. (2003) with respect to Islam are based

on a sample with little Muslim representation. The bulk of the sample consists of

individuals from Christian background, and only about five percent report Islam

as their religion. It is not known whether the findings of Guiso et al. (2003) with

respect to Islam hold for samples with larger Muslim representation.

1Hofstede (1983), p. 85.

88

This chapter exploits the WVS database, in particular the last two waves

which cover more predominantly Muslim countries. WVS offers data on 17 pre-

dominantly Muslim countries, with a total number of observations varying between

27,501 and 50,721, depending on the availability of data. Among the countries

covered by WVS are Azerbaijan, Iran, and Iraq–three predominantly Shi’ite coun-

tries. This allows for the opportunity to study ways in which religiosity in Sunni-

majority and Shi’ite-majority countries influence economically relevant attitudes.

Seventeen dependent variables are selected. These variables, gathered in six

groups, are measures of individual opinions and views towards a number of eco-

nomically relevant issues, namely: attitudes towards the role of women in society;

trusting others; respect of state institutions; respect of legal regulations; attitudes

about the market; and attitudes towards immigrants and people from different

cultural backgrounds. The explanatory variables measuring religiosity considered

in this chapter are those found to have a significant influence on economic growth

in chapter two. The variables are the belief that God is important in life, the

belief that religion is important in life, and attending formal religious services. I

also consider a measure of disbelief, namely whether the person is an atheist. The

regression analysis is performed on a sample of individuals from predominantly

Sunni countries, and replicated for a sample of individuals from Shi’ite-majority

countries.

The findings of the empirical analysis suggest that, overall, there are more

similarities than differences between the ways religiosity influences attitudes in

89

predominantly Sunni countries compared to predominantly Shi’ite countries. Re-

ligiosity is found in both groups of countries to encourage conservative attitudes

towards women. It is also found to be associated with intolerance towards im-

migrants and individuals from different cultural backgrounds. These findings are

consistent with the findings of chapters one and three of this dissertation, where

results suggest that religion by producing negative attitudes towards women and

strangers leads to poor economic performance measured by FDI and economic

growth.

Religiosity is found to be associated with pro-market attitudes in predomi-

nantly Sunni countries–the majority of Muslims in the world. Individuals from

Sunni-majority countries who believe in the importance of God and religion in

life, tend to think that competition is good, and that larger income differences

work as incentives. These findings do not agree with Guiso et al. (2003) who find

that Muslims are associated with anti-market attitudes. Furthermore, religios-

ity in both predominantly Sunni and predominantly Shi’ite countries encourages

confidence in state institutions and the respect of law. Empirical findings also sug-

gest that religiosity in predominantly Muslim societies increased after the event

of September 11. This result agrees with the findings of the literature (Rabasa

et al. (2004), for example), and lends support to the hypothesis of Maalouf (1998)

who argues that individuals tend to emphasize the dimension of their identity that

they feel is most threatened.

The rest of the chapter is organised as follows. The following section reviews

the study of Guiso et al. (2003). Section 3.3 presents the variables used in the

90

empirical analysis. Section 3.4 reports the results of the regression. Section 3.5

concludes the chapter.

3.2 Review of Guiso et al. (2003)

Guiso and his associates use the WVS database in order to examine the influence of

religious behaviour on individual attitudes that are believed to affect economic out-

comes. The authors consider 26 dependent variables grouped in seven categories.

These variables measure individual “attitudes towards (1) trust and cooperation,

(2) women, (3) the government, (4) the law, (5) the market, (6) thriftiness, and

(7) the fairness of the market.”1

For example, the second category (i.e. attitudes towards women) groups vari-

ables measuring individual views regarding the right of women to education and

work. Guiso et al. (2003) argue that the attitudes a society has towards the role of

women in society might have an impact on the labour market. Another example is

the fifth category which includes variables measuring opinions about the market.

Examples of these opinions are whether the individual thinks that larger income

inequalities work as an incentive, and whether competition is good or harmful.

In their empirical analysis, Guiso et al. (2003) regress each of the 26 depen-

dent variables on an array of variables measuring religious involvement, along with

measures of socio-demographic characteristics. The religion variables are whether

the individual was raised religiously, whether she or he does not believe in God

1For a discussion of these variables, see Guiso et al. (2003), p. 232. For the full list of the26 dependent variables, see p. 238-42.

91

(i.e. atheist), whether the respondent is currently religious (i.e. attend religious

services once a year), and whether she or he is actively religious (i.e. attend re-

ligious services once a week). The socio-demographic controls are a subjective

measure of the state of health, gender (male), age, education, self-perceived social

class, and income. Guiso et al. (2003) also control for country-fixed effects. The

total number of observations ranges between 52,252 to 95,739 depending on the

availability of data on the dependent variable. According to the figures reported

by Guiso et al. (2003) 60 percent of the respondents are Christian, 17 percent have

no religious affiliation, and only 5 percent report Islam as their religion.

Since the focus is on religiosity in its connection with the economically relevant

attitudes, in what follows I report only the findings of Guiso et al. (2003) with

respect to religion.

The Overall Influence of Religion

In the first part of their study, Guiso et al. (2003) look at the overall influence

of religion on economically relevant attitudes without any distinction between the

various religious denominations.

According to the results of the OLS regression, religiosity, measured by raised

religiously, currently religious (i.e. attend once a year), and actively religious (i.e.

attend once a week), tends to be associated with trust, respect of institutions and

the law, and the belief in the fairness of the market. On the other hand, religiosity

is associated with intolerance towards immigrants and other races. It also fosters

conservative attitudes towards the role of women in society. By contrast, atheists

92

tend to be associated with the opposite attitudes. They have less confidence in

state institutions, have anti-market attitudes, more inclined to break the law,

have progressive attitudes towards women, more tolerant towards other races and

immigrants, and tend to trust others.

Influence of Dominant Religion

In the second part of their study, Guiso et al. (2003) investigate the influence

of religious behaviour on attitudes when the respondent belongs to the country’s

dominant religion. The authors argue that some aspects of the dominant reli-

gion, by force of habit, become part of individual’s behaviour without implying

religious commitment. Hence, it is possible that being religious and belonging

to the country’s dominant religion is different from being religious in a minority

religion. In order to disentangle the effect of the dominant religion from that of

the minority religion, Guiso and his colleagues consider the same measures of re-

ligious behaviour (raised religiously, currently religious (i.e. attend once a year),

and actively religious (i.e. attend once a week)), and their adjusted versions for

whether the individual adheres to the dominant religion of the country.

The results of the regression suggest that individuals brought up religiously

in the dominant religion tend to have more confidence in police and the military

compared to their peers from other religions. With respect to attitudes towards

women, the influence of the dominant religion is unclear. While being raised re-

ligiously in the dominant religion tends to foster conservative attitudes, actively

religious individuals in the dominant religion are found to have the opposite atti-

tudes. Regardless of whether the individual belongs to the dominant religion or

93

another religion, religiosity tends to be associated with the respect of legal rules.

The findings of Guiso et al. (2003) also show that individuals brought up religiously

in the dominant religion tend to be associated with low levels of trust. With re-

spect to attitudes towards the market, the results of the regression suggest that

the influence of being religious in the dominant religion is null (Guiso et al., 2003).

The dominance of a religion tends to be associated with intolerance. In this

respect, Guiso et al. (2003) find that Catholics tend to be intolerant in Catholic-

dominated societies. However, they tend to be tolerant in predominantly Protes-

tant societies. Similarly, Protestants are less tolerant in predominantly Protestant

countries than in predominantly Catholic countries. An interesting result is that

Jews tend to trust the government more in predominantly Protestant countries,

compared to predominantly Catholic countries (Guiso et al., 2003). The authors

rationalize this pattern by the anti-Jewish sentiments associated with Catholicism.

Influence of Different Religions

In order to examine how different religions influence individuals’ attitudes, Guiso

et al. (2003) interact religious behaviour with religious denomination. Seven reli-

gious groups are considered, namely Catholicism, Protestantism, Judaism, Islam,

Hinduism, Buddhism, and Others. The patterns of religious behaviour are the

same three measures of religious behaviour mentioned above, and their cumula-

tive effects. The authors also estimate the total impact of religion for the various

religious denominations.

According to the results of the estimation, religious Protestants tend to trust

94

others. For Hindus, however, being religious has a mixed influence. For Muslims

the effect is null. Results also suggest that of the six religious denominations,

religiosity in Islam tends to have the strongest impact on intolerance. Moreover,

religious Catholics, Protestants, and Muslims tend to have conservative attitudes

towards women. By contrast, there is evidence that religiosity across the various

denominations tends to be associated with confidence in the government and the

legal system. With the exception of Buddhism, where the effect is statistically

not different from zero, religiosity is seen to be associated with the respect of legal

rules.

Guiso et al. (2003) find that religiosity in Islam, in general, tends to be as-

sociated with anti-market attitudes. In particular, Muslims raised religiously do

not think that large income differences work as incentive and they are in favour

of less competition. Furthermore, actively religious Muslims think that private

ownership should be decreased. Catholicism, on the other hand, is seen to foster

the opposite attitudes. Regarding the perceived fairness of the market, on average

religiosity in Christianity, Islam, and Hinduism is associated with the belief that

the poor live in need because they are lazy, not because of injustices in society.

Influence of Islam as a Dominant Religion

When Islam is the dominant religion it tends to foster intolerance towards others.

By contrast, Muslims tend to trust the government in both predominantly Mus-

lim and predominantly Protestant countries. Compared to Christian-majority

countries, Catholics tend to trust the government less when Islam is the domi-

nant religion. On the other hand, Hindus are found to be more trusting of the

95

government in Muslim-majority countries. The effect in predominantly Christian

countries is null.

Religion is found to be associated with conservative attitudes towards women.

An interesting result, however, is the pattern revealed by the data when individu-

als are asked whether men should be prioritized when jobs are scarce. Catholicism,

Protestantism, and Islam tend to foster the attitude that men should be prioritized

among their respective followers when they are the dominant religions. Interest-

ingly, Jews tend to oppose such attitude only in Muslim-majority countries. The

effect in predominantly Christian countries is statistically not different from zero.

The findings of Guiso et al. (2003) suggest that Christians tend to respect the

law and trust the legal system more in predominantly Christian countries. How-

ever, Catholics are found to have less trust in the government when Islam is the

dominant religion. According to the results of the regression, Muslims consistently

trust the legal system regardless of the dominant religion. However, the impact

is stronger when Islam is the dominant religion. On the other hand, Muslims are

more willing to cheat on taxes in predominantly Muslim countries. However, the

effect is null when Christianity is the dominant religion.

Guiso et al. (2003) find that when Islam is the dominant religion, Muslims

tend to be associated with anti-market attitudes. In particular, they do not think

that larger income differences work as incentives, they tend to think that private

ownership should be decreased, and for those brought up religiously, competition

is not good. However, Muslims, like Christians and Hindus, tend to think that

96

the poor are in need because they are lazy, rather than because of injustices in the

society. Finally, the results show that Islam in predominantly Muslim countries

tends to be associated with the attitude that thriftiness is a value that should be

taught to children.

The Second Vatican Council and Attitudes of Catholics

Between 1962 and 1965, the Vatican held a series of meetings known as the Sec-

ond Vatican Council to address matters related to the Catholic faith. The Council

resulted in major changes that affected the way Roman Catholics practice their

religion and the way they think of the followers of other faiths. For example, the

Vatican permitted the use of the vernacular instead of Latin in masses. Also, in a

document issued by the Council the leadership of the Catholic Church talks about

the followers of non-Christian faiths with a remarkably positive tone.

In order to test for whether the changes brought about by the Second Vatican

Council to the Catholic faith had an influence on Catholics’ attitudes, Guiso et al.

(2003) generate a dummy variable, coded 1 if the respondent is a Catholic born

after 1960, 0 otherwise. This dummy variable is included in the regression, and

interacted with three aspects of religiosity: raised Catholic, raised plus currently

Catholic, and raised plus currently Catholic plus actively Catholic.

Guiso et al. (2003) find that Catholics born after 1960 are more tolerant to-

wards other races and immigrants. They are also more trusting of others. This

result seems at odds with the negative association between Catholicism and trust

found in the literature. The authors rationalize the seemingly conflicting findings

97

by arguing that there could be some “cultural characteristics that survive in coun-

tries imbued with Catholic culture, but do not exist any more in Catholic people.”1

With respect to attitudes towards women, there is evidence that Catholics

born after the Council are associated with more progressive views. Furthermore,

they tend to respect the law more than their older peers. However, they have

anti-market attitudes (e.g. they favour less private property, and think that com-

petition is bad), and tend to think that the poor are in need because of injustices

in the society, not because of laziness. Finally, post-Council Catholics are found

to be associated with the attitude that thriftiness is a value worth teaching to

children (Guiso et al., 2003).

Summary of the Review

The study of Guiso et al. (2003) examines the relationship between religion and

economically relevant attitudes. Specifically, it looks at the ways in which differ-

ent patterns of religious behaviour map onto different attitudes that are believed

to influence economic outcomes. Religious behaviour is measured by whether the

person is raised religiously, currently religious (i.e. attend services at least once

a year) and actively religious (i.e. attend services at least once a week). Eco-

nomically relevant attitudes are measured by opinions about issues believed to

influence economic outcomes. Examples are the level of trust an individual has

towards others, the respect of legal rules, and attitudes about the market.

The findings relative to Islam suggest that Muslims tend to be less tolerant

1Guiso et al. (2003), pp. 265, 280.

98

towards others and have conservative attitudes towards women. Islam does not

seem to have an influence on trust, however. The results also show that Muslims

are less willing to break the law and tend to have confidence in government. How-

ever, the effect is much stronger in countries where Islam or Protestantism are

the dominant religions. Moreover, Islam is seen to be correlated with anti-market

attitudes. “Overall, [findings suggest] that Christian religions are more positively

associated with attitudes conducive to economic growth, while religious Muslims

are the most anti-market.”1

However, the study of Guiso et al. (2003) has some limitations. The first re-

mark concerns the choice of the religiosity variables. The authors consider three

measures of religious behaviour, namely raised religiously, actively religious, and

currently religious. An individual is considered as actively religious if she or he at-

tends religious services once a week. However, currently religious means attending

religious services once a year. It is straightforward to notice the overlap between

actively religious and currently religious as defined by the authors. A person who

attends religious services once a week is actually actively religious and currently

religious. Furthermore, it is questionable whether attending religious services once

a year implies religiosity. It is possible that attending religious services reflects

compliance with certain social norms, rather than religious conviction. Hence, a

better measure of being religious is the answer to the WVS question whether the

respondent considers herself or himself religious.

One further remark about the composition of the sample is in order. In their

1Guiso et al. (2003), p. 228.

99

paper Guiso et al. (2003) use a sample of individuals from countries that are pre-

dominantly Christian. Only three countries, Azerbaijan, Bangladesh, and Turkey,

have predominately Muslim populations. Respondents who reported Islam as

their religion make less than 6 percent of the sample size. Hence, the question is

whether the findings of Guiso et al. (2003) with respect to Islam hold for a larger

sample.

3.3 Empirical Analysis

This chapter makes use of data collected by WVS on individuals from 17 predomi-

nantly Muslim countries. Seventeen dependent variables, gathered in six categories

of economically relevant attitudes, are selected. These categories are measures of

views towards the role of women in society; trusting others; confidence in state

institutions; respect of legal regulations; attitudes towards the market; and tol-

erance towards immigrants and people of different race and religion. It is worth

noting that the dependent variables are measures of opinions and intention rather

than actual behaviour. This, as Guiso et al. (2003) explain, reduces the influence

of spurious factors. “Asking somebody his view on cheating on taxes is different

from asking him if he has cheated on his taxes. The decision of whether to actually

cheat is affected greatly by the probability of being caught. This is a function of

a country’s law enforcement, not of an individual’s attitude. Therefore, looking

at attitudes is a better way of identifying the effect of religious beliefs on peo-

ple’s preferences.”1 Table (3.1) provides a summary statistics of the dependent

variables.

1Guiso et al. (2003), pp. 231-32.

100

Tab

le3.1

:S

um

mary

Sta

tist

ics

of

Sele

cte

dA

ttit

ud

es

Var

iab

leO

bse

rvat

ion

sM

ean

S.D

.M

inM

ax

I.A

ttit

ud

es

tow

ard

sw

om

en

1.W

hen

job

sar

esc

arc

e,m

ensh

ould

be

pri

orit

ized

50,7

210.

668

0.47

10

12.

Men

make

bet

ter

poli

tici

an

sth

anw

omen

47,5

173.

022

0.95

21

43.

Un

iver

sity

ism

ore

imp

orta

nt

for

boy

s48

,265

2.26

21.

051

14

4.B

eing

ah

ouse

wif

eis

asfu

lfill

ing

asw

orkin

gfo

rp

ay45

,682

2.92

40.

935

14

II.

Tru

stin

goth

ers

5.M

ost

peo

ple

can

be

tru

sted

50,7

210.

250

0.43

30

1

III.

Att

itu

des

tow

ard

sst

ate

inst

itu

tion

s6.

Ih

ave

con

fiden

cein

just

ice

20,1

342.

759

0.91

41

47.

Ih

ave

con

fiden

cein

the

pol

ice

39,5

712.

720

0.99

11

48.

Ih

ave

con

fiden

cein

the

gove

rnm

ent

42,4

662.

667

0.99

71

4

IV.

Att

itu

des

tow

ard

sle

gal

rule

s9.

Not

just

ified

toac

cep

ta

bri

be

43,8

379.

415

1.62

81

1010

.N

ot

just

ified

toch

eat

on

taxes

37,2

039.

135

1.96

41

1011

.N

ot

just

ified

tocl

aim

gov

.b

enefi

tn

oten

titl

edto

37,8

928.

571

2.48

11

10

V.

Att

itu

des

ab

ou

tth

em

ark

et

12.

Com

pet

itio

nis

good

27,5

017.

760

2.50

21

1013

.P

riva

tep

rop

erty

shou

ldb

ein

crea

sed

46,3

625.

324

3.00

11

1014

.L

arg

erin

com

ed

iffer

ence

sw

ork

asin

centi

ve45

,554

6.19

83.

088

110

VI.

Tole

ran

ce

tow

ard

soth

ers

15.

Id

on

otli

ke

nei

ghb

ou

rsof

diff

eren

tra

ce41

,815

0.26

30.

440

01

16.

Id

on

otli

ke

toh

ave

imm

igra

nt

nei

ghb

ours

41,8

150.

335

0.47

20

117

.I

do

not

like

nei

ghb

ou

rsof

diff

eren

tre

ligi

on35

,157

0.31

00.

462

01

Not

es:

All

vari

ab

les

are

cod

edin

aw

ayth

ata

hig

her

valu

ere

pre

sents

ah

igh

erd

egre

eof

agre

emen

tw

ith

the

stat

emen

t.

101

The first group of variables is about attitudes towards women. The findings

of the first chapter suggest that more progressive attitudes towards the role of

women in society lead to better FDI performance. The second category is about

trust. Trust is believed to have an influence on economic performance (Guiso

et al., 2009; Algan and Cahuc, 2010) and institutions (La Porta et al., 1997).

The third and the fourth categories of attitudes include variables measuring con-

fidence in state institutions and respect of legal regulations. The findings of the

empirical literature show that corruption, for example, is deleterious to economic

growth (Mauro, 1995; Mo, 2001, for example). The fifth category measures atti-

tudes about the market. Arguing in favour of the free market model, Easton and

Walker (1997) observe that a freer economic structure stimulates growth. Never-

theless, some authors argue that in some cases a higher level of state intervention is

desirable. For example, Amsden (1992) argues that late-industrializing countries,

such as South Korea, provide evidence for the positive role of the state in driv-

ing economic growth. In this sense, it is possible that pro-market attitudes have

the reverse effect on growth for predominantly Muslim countries. Category six

includes variables measuring tolerance towards immigrants and individuals from

different religious and racial backgrounds. Landes (1998) argues that the intol-

erant Catholic Inquisition led many of the skilled people to leave. “[The Jews]

took with them money, commercial know-how, connections, knowledge, and –

even more serious – those immeasurable qualities of curiosity and dissent that are

the leaven of thought.”1 Moreover, the findings of the first chapter suggest that

countries enjoying higher levels of external cultural openness are more attractive

to foreign investors. As shown in Table (3.1), all variables are coded in a way that

1Landes (1998), p. 134.

102

a higher value refers to a higher level of agreement.

The 17 dependent variables are regressed on measures of religious behaviour.

The explanatory variables measuring religiosity I use are those found to be statis-

tically significant in chapter two. These variables are the belief in the importance

of God in life (1 to 10, with the value 10 being very important), the belief in the

importance of religion in life (1 to 4, with 4 being very important), and attending

formal religious services once a week (yes = 1, 0 otherwise). I also consider a

measure of disbelief, namely whether the respondent is an atheist.

Following Guiso et al. (2003) I control for individual characteristics. The con-

trol variables are a subjective measure of the state of health ranging from 1 being

very poor to 5 being very good; a dummy variable for gender that takes the value

1 if the respondent is a woman, 0 otherwise; the actual age of the respondent;

a measure of educational attainment ranging from 1 to 8 with the lowest level

being “inadequately completed elementary education” and the highest level being

a university graduate; and a measure of income level (10 steps, with 1 being the

lowest step and 10 being the highest step). With the exception of gender, the

variables are coded in a way that a higher value refers to a higher state.

Shi’ism and Sunnism are the largest denominations of Islam, with Sunnis repre-

senting around 90 percent of world Muslims. Shi’ites are concentrated in four coun-

tries, namely Azerbaijan, Bahrain, Iran, and Iraq. Historically Shi’ism emerged

as a result of a disagreement over political power, but underpinned by a religious

dimension. Upon the death of Mohamed, a group of people, who would later

103

become known as Shi’a1 (Shi’ite in English language), favoured Ali, Mohamed’s

cousin and son in law, for the leadership of Muslims. However, Abu Bakr was

chosen for the position. Politically defeated, the supporters of Ali would not give

up. They would make use of the Islamic scriptures and interpret them in a way to

promote Ali as a man with supernatural, almost divine, qualities. After the death

of Imam Ali,2 the interpretation effort that sought to promote him as a perfect

leader did not wither away. It carried on with other Imams. Ali and eleven Imams

together are the twelve historical Imams who Shi’ites refer to in religious matters.

For Sunnis, while Ali is a respected figure in Islam he does not have any privileged

status, let alone supernatural qualities.

Over the centuries as differences between Sunnism and Shi’ism built up, the

two denominations of Islam drifted apart to form two different systems of beliefs.

Since this chapter examines how different levels of religiosity map onto economi-

cally meaningful attitudes in predominantly Muslim societies, it is interesting to

see whether theological differences between Sunnism and Shi’ism play any role in

shaping people’s attitudes.

The WVS database does not provide data on whether the Muslim respondent

is Sunni or Shi’ite. However, it offers data on three predominantly Shi’ite coun-

tries, namely Azerbaijan, Iran, and Iraq. This gives the opportunity to examine

how religious behaviour in Sunni-majority countries map onto economically rele-

vant attitudes compared to Shi’ite-majority countries.

1Shi’a is Arabic for followers.2In Sunni Islam, the person who leads the prayers is called an Imam. However, in Shi’ism

Imam is a title reserved to Ali and eleven of his male descendants. It is worth noting thatKhomeini made an exception and was referred to by his supporters as Imam.

104

Although the dependent variables are measures of opinions and not actual

behaviour, which helps reducing spurious correlations (Guiso et al., 2003), the

estimated coefficients should not be interpreted as cause-effect relationships, but

rather as correlations. The reason is that, as Guiso et al. (2003) explain, there

could be some latent variable that influences both religiosity and the attitudes

individuals have.


Table (3.2) reports the results relative to the sample of individuals from predom-

inantly Sunni countries. The table consists of three panels – A, B, and C – each

reports the results relative to a set of dependent variables. Each dependent vari-

able, shown in the top row of each panel, is regressed on four variables measuring

attendance and the intensity of religious belief, along with other controls. The

regression is replicated for a sample of individuals from predominantly Shi’ite

countries, and the results of the regression are reported in Panels A through to

C of Table (3.3). In order to respect the ordinality of the dependent variables, I

follow Daykin and Moffatt (2002) and use the ordered probit regression technique.

For technical reasons related to the presentation of the results, I follow Guiso

et al. (2003) and discuss the results in terms of the “influence” of the independent

variable on the dependent variable. However, as already mentioned, the rela-

tionship between the independent variable and the dependent variable should be

understood as a correlation.

105

According to the results of the estimation, older individuals in both Sunni-

majority and Shi’ite-majority countries tend to have conservative attitudes to-

wards the role of women in society. By contrast, education and wealth are seen

to foster progressive attitudes. As expected, women are strongly opposed to the

limitation of their rights. Surprisingly, women in Shi’ite-majority countries dis-

agree with their peers in Sunni-majority countries in that they hold the belief that

being a housewife is as fulfilling as working for pay. The bulk of the Shi’ite sample

consists of individuals from Iran and Iraq, and it is possible that the apparent

contentment with the role of a housewife in Shi’ite-majority countries is rather an

expression of the state of uncertainty created by the political and economic up-

heavals these countries know. Compared to men, women are found to have more

confidence in state institutions, and they are more willing to respect legal rules.

Overall, the influence of age, education, and gender on attitudes towards women

in predominantly Muslim countries is similar to that found by Guiso et al. (2003).

In agreement with the findings of Guiso et al. (2003), the empirical results

suggest that older individuals in both groups of countries have, ceteris paribus, a

higher propensity to trust others compared to their younger peers. On the other

hand, individuals with higher educational attainment tend to distrust others, have

less confidence in state institutions, and they are more willing to break legal regu-

lations. In the study of Guiso et al. (2003), education is also found to discourage

confidence in state institutions. Interestingly, while income is found to foster con-

fidence in state institutions in predominantly Shi’ite countries, it tends to have

the opposite impact in predominantly Sunni countries. Regarding the respect of

106

Tab

le3.2

:R

eligio

nan

dA

ttit

ud

es

inS

un

ni

Cou

ntr

ies

Pan

el

A—

Att

itu

des

Tow

ard

sW

om

en

an

dT

rust

ing

Oth

ers

Yes

,w

hen

Job

sar

eY

es,

men

mak

eY

es,

univ

ersi

tyY

es,

bei

ng

Yes

,m

ost

scar

ce,

men

shou

ldb

ette

rp

olit

icia

ns

ism

ore

imp

orta

nt

ah

ouse

wif

eis

peo

ple

can

be

pri

orit

ized

than

wom

enfo

rb

oys

fulfi

llin

gb

etr

ust

ed

Sta

teof

hea

lth

-0.0

30*

*-0

.01

-0.0

21**

0.02

1*0.

129*

*(0

.010)

(0.0

08)

(0.0

08)

(0.0

08)

(0.0

11)

Gen

der

(wom

an)

-0.5

12**

-0.4

01**

-0.3

99**

-0.1

07**

-0.0

06(0

.016)

(0.0

13)

(0.0

13)

(0.0

13)

(0.0

17)

Age

0.0

010.

002*

*0.

001

0.00

4**

0.00

6**

(0.0

01)

(0.0

01)

(0.0

00)

(0.0

00)

(0.0

01)

Ed

uca

tion

-0.0

75**

-0.0

51**

-0.0

88**

-0.0

42**

-0.0

27**

(0.0

04)

(0.0

03)

(0.0

03)

(0.0

03)

(0.0

04)

Inco

me

level

-0.0

27*

*-0

.025

**-0

.030

**-0

.007

*0.

004

(0.0

04)

(0.0

03)

(0.0

03)

(0.0

03)

(0.0

04)

Ath

eist

0.10

20.

023

-0.0

24-0

.105

*0.

036

(0.0

62)

(0.0

54)

(0.0

54)

(0.0

52)

(0.0

74)

God

isim

por

tant

0.0

35**

0.03

0**

0.00

8-0

.008

-0.0

10(0

.005)

(0.0

04)

(0.0

05)

(0.0

04)

(0.0

06)

Rel

igio

nis

imp

orta

nt

0.18

5**

0.12

7**

0.10

4**

0.11

3**

-0.0

60**

(0.0

15)

(0.0

13)

(0.0

13)

(0.0

13)

(0.0

17)

Tem

ple

att

end

an

ce0.0

14-0

.040

*0.

007

-0.0

41*

-0.0

24(0

.021)

(0.0

17)

(0.0

17)

(0.0

17)

(0.0

21)

Pse

ud

o-R

20.

126

0.07

90.

055

0.08

50.

084

Nu

mb

erof

ob

serv

atio

ns

32,7

51

30,6

5431

,083

31,6

4832

,751

Note

s:O

rder

edp

rob

itre

gres

sion

s.A

llre

gres

sion

sin

clu

de

du

mm

ies

for

cou

ntr

ies

and

the

surv

eyye

ar.

Th

est

and

ard

erro

rsre

por

ted

inp

aren

thes

es.

Th

esy

mb

ols

**an

d*

mea

nth

atth

eco

effici

ent

isst

atis

tica

lly

sign

ifica

nt

atth

e1

and

5p

erce

nt

leve

l,re

spec

tive

ly.

107

Tab

le4.2

:R

eligio

nan

dA

ttit

ud

es

inS

un

ni

Cou

ntr

ies

Pan

el

B—

Con

fid

en

ce

inIn

stit

uti

on

san

dR

esp

ect

of

Legal

Ru

les

Ih

ave

Ih

ave

Ih

ave

Acc

epti

ng

aC

hea

tin

gon

Cla

imin

ggo

vern

men

tco

nfi

den

ceco

nfi

den

ceco

nfi

den

ceb

rib

eis

not

taxes

isn

otb

enefi

tsn

oten

titl

edin

just

ice

inth

ep

olic

ein

gove

rnm

ent

just

ified

just

ified

tois

not

just

ified

Sta

teof

hea

lth

0.0

99**

0.06

5**

0.06

0**

0.04

3**

0.04

2**

0.05

0**

(0.0

12)

(0.0

08)

(0.0

09)

(0.0

12)

(0.0

11)

(0.0

10)

Gen

der

(wom

an)

0.12

3**

0.09

0**

0.11

8**

0.08

9**

0.13

2**

0.06

4**

(0.0

20)

(0.0

13)

(0.0

14)

(0.0

19)

(0.0

18)

(0.0

16)

Age

0.0

03**

0.00

4**

0.00

3**

0.00

6**

0.00

7**

0.00

6**

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

Ed

uca

tion

-0.0

51**

-0.0

41**

-0.0

48**

0.02

2**

0.01

2**

0.01

3**

(0.0

05)

(0.0

03)

(0.0

03)

(0.0

05)

(0.0

04)

(0.0

04)

Inco

me

level

-0.0

04-0

.023

**-0

.026

**-0

.013

**-0

.014

**-0

.014

**(0

.005)

(0.0

04)

(0.0

04)

(0.0

05)

(0.0

05)

(0.0

04)

Ath

eist

-0.0

52

-0.1

78**

-0.0

91-0

.036

0.00

80.

072

(0.0

97)

(0.0

52)

(0.0

53)

(0.0

67)

(0.0

61)

(0.0

56)

God

isim

por

tant

0.02

1**

0.03

0**

0.03

0**

0.05

3**

0.06

3**

0.04

5**

(0.0

06)

(0.0

04)

(0.0

04)

(0.0

06)

(0.0

05)

(0.0

05)

Rel

igio

nis

imp

orta

nt

0.15

0**

0.16

9**

0.13

6**

0.05

1**

0.03

8*0.

052*

*(0

.018)

(0.0

13)

(0.0

13)

(0.0

17)

(0.0

17)

(0.0

15)

Tem

ple

att

end

an

ce-0

.014

0.06

0**

-0.0

18-0

.007

0.01

6-0

.012

(0.0

28)

(0.0

18)

(0.0

18)

(0.0

26)

(0.0

24)

(0.0

20)

Pse

ud

o-R

20.

036

0.07

80.

057

0.11

50.

086

0.06

9N

um

ber

ofob

serv

atio

ns

12,

695

27,7

9126

,219

27,2

9925

,850

26,8

49

Note

s:O

rder

edp

rob

itre

gres

sion

s.A

llre

gres

sion

sin

clu

de

du

mm

ies

for

cou

ntr

ies

and

the

surv

eyye

ar.

Th

est

and

ard

erro

rsre

por

ted

inpare

nth

eses

.T

he

sym

bol

s**

and

*m

ean

that

the

coeffi

cien

tis

stat

isti

call

ysi

gnifi

cant

atth

e1

and

5p

erce

nt

leve

l,re

spec

tivel

y.

108

Tab

le4.2

:R

eligio

nan

dA

ttit

ud

es

inS

un

ni

Cou

ntr

ies

Pan

el

C—

Att

itu

des

Tow

ard

sth

eM

ark

et

an

dT

ole

ran

ce

Tow

ard

sO

thers

Ith

ink

Yes

,la

rger

inco

me

Ith

ink

pri

vate

Id

on

otli

ke

Id

on

otli

keI

do

not

like

com

pet

itio

nd

iffer

ence

sw

ork

pro

per

tysh

ould

nei

ghb

ours

ofim

mig

rant

nei

ghb

ours

ofis

good

asin

centi

veb

ein

crea

sed

diff

.ra

cenei

ghb

ours

diff

.re

ligi

on

Sta

teof

hea

lth

0.01

90.

036*

*0.

057*

*0.

009

-0.0

20*

0.00

4(0

.010)

(0.0

08)

(0.0

08)

(0.0

11)

(0.0

10)

(0.0

12)

Gen

der

(wom

an)

-0.0

85**

-0.0

06-0

.081

**0.

020

-0.0

10.

021

(0.0

16)

(0.0

12)

(0.0

12)

(0.0

17)

(0.0

16)

(0.0

20)

Age

0.00

2**

0.00

00.

002*

*0.

001

-0.0

01*

-0.0

03**

(0.0

01)

(0.0

00)

(0.0

00)

(0.0

01)

(0.0

01)

(0.0

01)

Ed

uca

tion

0.0

48*

*0.

033*

*0.

044*

*-0

.051

**-0

.040

**-0

.046

**(0

.004)

(0.0

03)

(0.0

03)

(0.0

04)

(0.0

04)

(0.0

05)

Inco

me

level

-0.0

09*

0.02

8**

0.02

3**

-0.0

30**

-0.0

27**

-0.0

26**

(0.0

04)

(0.0

03)

(0.0

03)

(0.0

04)

(0.0

04)

(0.0

05)

Ath

eist

-0.0

26

-0.1

47**

-0.1

73**

-0.0

880.

021

0.02

6(0

.076)

(0.0

51)

(0.0

50)

(0.0

70)

(0.0

68)

(0.0

73)

God

isim

por

tant

0.0

44**

0.04

1**

-0.0

13**

0.02

6**

0.02

0**

0.03

0**

(0.0

05)

(0.0

04)

(0.0

04)

(0.0

06)

(0.0

06)

(0.0

07)

Rel

igio

nis

imp

orta

nt

0.004

0.02

4*0.

029*

0.13

2**

0.06

8**

0.15

4**

(0.0

14)

(0.0

12)

(0.0

12)

(0.0

18)

(0.0

17)

(0.0

21)

Tem

ple

att

end

an

ce0.0

33

0.01

50.

055*

*-0

.052

*-0

.047

*-0

.057

*(0

.022)

(0.0

16)

(0.0

16)

(0.0

22)

(0.0

21)

(0.0

26)

Pse

ud

o-R

20.0

250.

048

0.02

30.

098

0.08

90.

092

Nu

mb

erof

ob

serv

atio

ns

19,6

1531

,605

30,3

5528

,924

28,9

2621

,132

Note

s:O

rder

edp

rob

itre

gres

sion

s.A

llre

gres

sion

sin

clu

de

du

mm

ies

for

cou

ntr

ies

and

the

surv

eyyea

r.T

he

stan

dar

der

rors

rep

orte

din

pare

nth

eses

.T

he

sym

bol

s**

and

*m

ean

that

the

coeffi

cien

tis

stat

isti

call

ysi

gnifi

cant

atth

e1

and

5p

erce

nt

leve

l,re

spec

tive

ly.

109

law, income in predominantly Muslim countries (both Sunni and Shi’ite) tends to

have the same impact as in predominantly Christian countries: richer individuals

are more willing to break the law.

With respect to the market, the results of the regression indicate that women

in predominantly Muslim countries, like their peers in predominantly Christian

countries (Guiso et al., 2003), tend to have anti-market attitudes. In particular

they do not think that competition is good, and think that private property should

be decreased. In agreement with the findings of Guiso et al. (2003), education is

found to encourage pro-market attitudes.

Regarding attitudes towards immigrants and individuals from different reli-

gious and ethnic backgrounds, the results of the regression suggest that age, ed-

ucation, and wealth tend to be associated with tolerance towards foreigners in

Sunni-majority countries. Compared to men, women in predominantly Shi’ite

countries are more tolerant towards immigrants and individuals of different reli-

gions.

Now we turn our attention to the influence of religion. The empirical find-

ings reported in Tables (3.2) and (3.3) suggest that religiosity in predominantly

Muslim countries, measured by the belief in the importance of God and religion

in life, and temple attendance, has an influence on economically relevant attitudes.

According to the results of the regression, individuals who believe in the im-

portance of religion in life in both predominantly Sunni and predominantly Shi’ite

110

Tab

le3.3

:R

eligio

nan

dA

ttit

ud

es

inS

hi’it

eC

ou

ntr

ies

Pan

el

A—

Att

itu

des

Tow

ard

sW

om

en

an

dT

rust

ing

Oth

ers

Yes

,w

hen

Job

sar

eY

es,

men

mak

eY

es,

univ

ersi

tyY

es,

bei

ng

Yes

,m

ost

scar

ce,

men

shou

ldb

ette

rp

olit

icia

ns

ism

ore

imp

orta

nt

ah

ouse

wif

eis

peo

ple

can

be

pri

orit

ized

than

wom

enfo

rb

oys

fulfi

llin

gb

etr

ust

ed

Sta

teof

hea

lth

0.0

28-0

.011

-0.0

20.

054*

*0.

115*

*(0

.016)

(0.0

14)

(0.0

13)

(0.0

16)

(0.0

17)

Gen

der

(wom

an)

-0.3

60**

-0.2

80**

-0.3

08**

0.05

2*0.

000

(0.0

27)

(0.0

23)

(0.0

21)

(0.0

26)

(0.0

27)

Age

0.0

010.

002*

0.00

00.

003*

*0.

002*

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

Ed

uca

tion

-0.0

36**

-0.0

29**

-0.0

74**

-0.0

11-0

.029

**(0

.006)

(0.0

05)

(0.0

05)

(0.0

06)

(0.0

06)

Inco

me

level

-0.0

15*

-0.0

38**

-0.0

20**

-0.0

14-0

.003

(0.0

07)

(0.0

06)

(0.0

06)

(0.0

08)

(0.0

08)

Ath

eist

-0.4

08**

0.00

1-0

.183

-0.0

5-0

.056

(0.1

30)

(0.1

22)

(0.1

11)

(0.1

30)

(0.1

30)

God

isim

por

tant

0.01

70.

006

-0.0

120.

013

-0.0

22*

(0.0

10)

(0.0

08)

(0.0

08)

(0.0

10)

(0.0

11)

Rel

igio

nis

imp

orta

nt

0.15

9**

0.12

7**

0.10

6**

0.05

5*0.

022

(0.0

25)

(0.0

22)

(0.0

21)

(0.0

27)

(0.0

28)

Tem

ple

att

end

an

ce0.0

580.

045

0.01

-0.0

29-0

.013

(0.0

42)

(0.0

35)

(0.0

32)

(0.0

40)

(0.0

40)

Pse

ud

o-R

20.

044

0.08

20.

019

0.02

00.

101

Nu

mb

erof

ob

serv

atio

ns

11,2

11

10,7

5910

,882

7,77

511

,211

Note

s:O

rder

edp

rob

itre

gres

sion

s.A

llre

gres

sion

sin

clu

de

du

mm

ies

for

cou

ntr

ies

and

the

surv

eyye

ar.

Th

est

and

ard

erro

rsre

por

ted

inp

aren

thes

es.

Th

esy

mb

ols

**an

d*

mea

nth

atth

eco

effici

ent

isst

atis

tica

lly

sign

ifica

nt

atth

e1

and

5p

erce

nt

leve

l,re

spec

tive

ly.

111

Tab

le4.3

:R

eligio

nan

dA

ttit

ud

es

inS

hi’it

eC

ou

ntr

ies

Pan

el

B—

Con

fid

en

ce

inIn

stit

uti

on

san

dR

esp

ect

of

Legal

Ru

les

Ih

ave

Ih

ave

Ih

ave

Acc

epti

ng

aC

hea

tin

gon

Cla

imin

ggo

vern

men

tco

nfi

den

ceco

nfi

den

ceco

nfi

den

ceb

rib

eis

not

taxes

isn

otb

enefi

tsn

oten

titl

edin

just

ice

inth

ep

olic

ein

gove

rnm

ent

just

ified

just

ified

tois

not

just

ified

Sta

teof

hea

lth

0.04

3*0.

111*

*0.

082*

*0.

042*

0.10

7**

0.10

7**

(0.0

22)

(0.0

18)

(0.0

14)

(0.0

18)

(0.0

21)

(0.0

19)

Gen

der

(wom

an)

-0.0

33

0.00

80.

094*

*-0

.033

0.07

7*0.

090*

*(0

.035)

(0.0

29)

(0.0

22)

(0.0

29)

(0.0

33)

(0.0

30)

Age

-0.0

03*

-0.0

04**

0.00

10.

006*

*0.

007*

*0.

007*

*(0

.001)

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

Ed

uca

tion

-0.0

73**

-0.0

74**

-0.0

53**

0.02

6**

0.01

1-0

.003

(0.0

08)

(0.0

07)

(0.0

05)

(0.0

07)

(0.0

08)

(0.0

07)

Inco

me

level

0.0

42**

0.04

8**

0.02

7**

-0.0

36**

-0.0

17-0

.026

**(0

.010)

(0.0

08)

(0.0

06)

(0.0

08)

(0.0

09)

(0.0

08)

Ath

eist

0.09

2-0

.188

0.23

7*-0

.333

*-0

.560

**-0

.327

(0.2

99)

(0.1

82)

(0.1

19)

(0.1

47)

(0.1

85)

(0.1

83)

God

isim

por

tant

0.01

20.

033*

*-0

.003

0.08

3**

0.00

90.

004

(0.0

10)

(0.0

09)

(0.0

08)

(0.0

09)

(0.0

10)

(0.0

09)

Rel

igio

nis

imp

orta

nt

0.24

1**

0.18

9**

0.20

6**

0.15

3**

0.17

1**

0.04

6(0

.028)

(0.0

23)

(0.0

22)

(0.0

25)

(0.0

25)

(0.0

24)

Tem

ple

att

end

an

ce0.0

880.

155*

*0.

088*

*-0

.043

-0.0

57-0

.04

(0.0

59)

(0.0

46)

(0.0

33)

(0.0

46)

(0.0

55)

(0.0

47)

Pse

ud

o-R

20.

023

0.03

30.

053

0.08

90.

059

0.02

2N

um

ber

ofob

serv

atio

ns

4,12

57,

949

10,1

036,

306

6,31

08,

908

Note

s:O

rder

edp

rob

itre

gres

sion

s.A

llre

gres

sion

sin

clu

de

du

mm

ies

for

cou

ntr

ies

and

the

surv

eyye

ar.

Th

est

and

ard

erro

rsre

por

ted

inpare

nth

eses

.T

he

sym

bol

s**

and

*m

ean

that

the

coeffi

cien

tis

stat

isti

call

ysi

gnifi

cant

atth

e1

and

5p

erce

nt

leve

l,re

spec

tivel

y.

112

Tab

le4.3

:R

eligio

nan

dA

ttit

ud

es

inS

hi’it

eC

ou

ntr

ies

Pan

el

C—

Att

itu

des

Tow

ard

sth

eM

ark

et

an

dT

ole

ran

ce

Tow

ard

sO

thers

Ith

ink

Yes

,la

rger

inco

me

Ith

ink

pri

vate

Id

on

otli

ke

Id

on

otli

keI

do

not

like

com

pet

itio

nd

iffer

ence

sw

ork

pro

per

tysh

ould

nei

ghb

ours

ofim

mig

rant

nei

ghb

ours

ofis

good

asin

centi

veb

ein

crea

sed

diff

.ra

cenei

ghb

ours

diff

.re

ligi

on

Sta

teof

hea

lth

0.04

3*0.

002

0.04

5**

0.02

20.

033

0.03

3(0

.022)

(0.0

15)

(0.0

13)

(0.0

23)

(0.0

23)

(0.0

18)

Gen

der

(wom

an)

-0.0

81*

0.02

7-0

.126

**0.

045

0.09

5**

0.07

1*(0

.034)

(0.0

24)

(0.0

21)

(0.0

36)

(0.0

36)

(0.0

29)

Age

-0.0

010.

002*

0.00

10.

001

0.00

4*0.

001

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

(0.0

01)

Ed

uca

tion

0.0

32*

*0.

017*

*0.

008

-0.0

31**

-0.0

06-0

.045

**(0

.008)

(0.0

05)

(0.0

05)

(0.0

08)

(0.0

09)

(0.0

06)

Inco

me

level

-0.0

19*

0.03

4**

0.02

7**

-0.0

02-0

.017

0.00

9(0

.009)

(0.0

07)

(0.0

06)

(0.0

10)

(0.0

10)

(0.0

08)

Ath

eist

0.01

6-0

.153

-0.3

83**

-0.0

94-0

.044

-0.2

73(0

.266)

(0.1

73)

(0.1

13)

(0.2

38)

(0.2

56)

(0.1

77)

God

isim

por

tant

0.0

26**

-0.0

27**

-0.0

55**

-0.0

020.

01-0

.011

(0.0

10)

(0.0

08)

(0.0

08)

(0.0

12)

(0.0

11)

(0.0

13)

Rel

igio

nis

imp

orta

nt

-0.0

59*

0.05

7**

-0.1

53**

0.09

4**

-0.0

250.

035

(0.0

27)

(0.0

21)

(0.0

21)

(0.0

31)

(0.0

29)

(0.0

32)

Tem

ple

att

end

an

ce-0

.021

-0.0

410.

022

-0.1

19*

0.06

50.

028

(0.0

58)

(0.0

37)

(0.0

32)

(0.0

56)

(0.0

58)

(0.0

40)

Pse

ud

o-R

20.0

050.

014

0.01

80.

038

0.18

60.

024

Nu

mb

erof

ob

serv

atio

ns

4,12

57,

949

10,1

036,

306

6,31

08,

908

Note

s:O

rder

edp

rob

itre

gres

sion

s.A

llre

gres

sion

sin

clu

de

du

mm

ies

for

cou

ntr

ies

and

the

surv

eyyea

r.T

he

stan

dar

der

rors

rep

orte

din

pare

nth

eses

.T

he

sym

bol

s**

and

*m

ean

that

the

coeffi

cien

tis

stat

isti

call

ysi

gnifi

cant

atth

e1

and

5p

erce

nt

leve

l,re

spec

tive

ly.

113

countries tend to be the most conservative. For example, they think that uni-

versity is more important for boys, and that being a housewife is as fulfilling as

working for pay. Interestingly, in predominantly Sunni countries, regular temple

goers tend to have progressive attitudes towards the role of women in society:

they disagree with the statement that men make better politicians than women,

and do not think that being a housewife is as fulfilling as working for pay.

In Sunni-majority countries the belief in the importance of religion in life is

found to discourage trust. However, in predominantly Shi’ite countries the neg-

ative influence on trust comes from the belief in the importance of God in life.

Regarding attitudes towards institutions and legal rules, the results of the regres-

sion suggest that religiosity tends to encourage confidence in state institutions and

the respect of law. By contrast, there are indications that atheists in predomi-

nantly Shi’ite countries are more willing to break the law.

Panel C in Tables (3.2) and (3.3) reports the results relative to the attitudes

towards the market and tolerance towards others. In Sunni-majority countries

belief and attendance, in general, are found to foster pro-market attitudes. Athe-

ism, on the other hand is associated with anti-market attitudes. In predominantly

Shi’ite countries, however, religiosity has a mixed influence on attitudes towards

the market. These findings are in disagreement with Guiso et al. (2003) who find

that Muslims tend to have anti-market attitudes.

With respect to attitudes towards others, the influence of religiosity in predom-

inantly Sunni countries is much stronger than in predominantly Shi’ite countries.

114

Individuals from Sunni-majority countries who believe that God and religion are

important in life tend to be intolerant towards immigrants and people from dif-

ferent religious and ethnic backgrounds. Regular temple attendance, by contrast,

tends to foster the opposite attitudes. Except for attending religious services which

is found to encourage tolerance towards others, my findings with respect to the in-

fluence of religiosity on tolerance are in agreement with those of Guiso et al. (2003).

In summary, in both predominantly Sunni and predominantly Shi’ite coun-

tries conservative attitudes towards women tend to be associated with individ-

uals who believe in the importance of God and religion in life. Religious belief

and attendance increase confidence in state institutions. Religious beliefs, but

not attendance (insignificant), are found to encourage the respect of legal rules.

With respect to the market, religiosity is associated with pro-market attitudes in

Sunni-majority countries. In Shi’ite-majority countries, believing in the impor-

tance of God and religion in life tends to encourage anti-market attitudes. In

Sunni-majority countries, while religious beliefs are associated with intolerance

towards immigrants and people of different race and religion, temple attendance

encourages the opposite attitude. It is possible that the positive association be-

tween attending services and tolerance towards strangers is due to the role played

by houses of worship as social clubs. Congregations offer an opportunity for indi-

viduals to meet and to know each other. This in turn eases communication and

can help removing prejudices towards strangers. It is equally plausible to argue

that the acceptance of strangers is due to the positive influence of the clergy.

Table (3.4) provides a summary of the findings with respect to the influence of

belief and attendance on individual attitudes in predominantly Sunni and pre-

115

Tab

le3.4

:R

eligio

nan

dE

conom

ically

Rele

vant

Att

itu

des

inS

un

ni

an

dS

hi’it

eC

ou

ntr

ies

God

imp

ort

ant

Religio

nim

port

ant

Tem

ple

att

en

dan

ce

Su

nn

iS

hi’

ite

Su

nn

iS

hi’it

eS

un

ni

Sh

i’it

e

I.A

ttit

udes

tow

ard

sw

om

en

1.W

hen

job

sar

esc

arc

e,m

ensh

ould

be

pri

orit

ized

0.03

5**

0.01

70.

185*

*0.

159*

*0.

014

0.05

82.

Men

make

bet

ter

poli

tici

an

sth

an

wom

en0.

030*

*0.

006

0.12

7**

0.12

7**

-0.0

40*

0.04

53.

Un

iver

sity

ism

ore

imp

orta

nt

for

boy

s0.

008

-0.0

120.

104*

*0.

106*

*0.

007

0.01

04.

Bei

ng

ah

ouse

wif

eis

asfu

lfill

ing

as

wor

kin

gfo

rp

ay-0

.008

0.01

30.

113*

*0.

055*

-0.0

41*

-0.0

29

II.

Tru

stin

goth

ers

5.M

ost

peo

ple

can

be

tru

sted

-0.0

10-0

.022

*-0

.060

**0.

022

-0.0

24-0

.013

III.

Att

itu

des

tow

ard

sst

ate

inst

itu

tion

s6.

Ih

ave

confi

den

cein

just

ice

0.02

1**

0.01

20.

150*

*0.

241*

*-0

.014

0.08

87.

Ih

ave

confi

den

cein

the

poli

ce0.

030*

*0.

033*

*0.

169*

*0.

189*

*0.

060*

*0.

155*

*8.

Ih

ave

confi

den

cein

the

gove

rnm

ent

0.03

0**

-0.0

030.

136*

*0.

206*

*-0

.018

0.08

8**

IV.

Att

itu

des

tow

ard

sle

gal

rule

s9.

Not

just

ified

toac

cep

ta

bri

be

0.05

3**

0.08

3**

0.05

1**

0.15

3**

-0.0

07-0

.043

10.

Not

just

ified

toch

eat

on

taxes

0.06

3**

0.00

90.

038*

0.17

1**

0.01

6-0

.057

11.

Not

just

ified

tocl

aim

gov

.b

enefi

tn

oten

titl

edto

0.04

5**

0.00

40.

052*

*0.

046

-0.0

12-0

.04

V.

Att

itu

des

ab

ou

tth

em

ark

et

12.

Com

pet

itio

nis

good

0.04

4**

0.02

6**

0.00

4-0

.059

*0.

033

-0.0

2113

.L

arg

erin

com

ed

iffer

ence

sw

ork

asin

centi

ves

0.04

1**

-0.0

27**

0.02

4*0.

057*

*0.

015

-0.0

4114

.P

riva

tep

rop

erty

shou

ldb

ein

crea

sed

-0.0

13**

-0.0

55**

0.02

9*-0

.153

**0.

055*

*0.

022

VI.

Tole

ran

ce

tow

ard

soth

ers

15.

Id

on

otli

ken

eighb

ours

of

diff

eren

tra

ce0.

026*

*-0

.002

0.13

2**

0.09

4**

-0.0

52*

-0.1

19*

16.

Id

on

otli

keh

avin

gim

mig

rant

nei

ghb

ours

0.02

0**

0.01

00.

068*

*-0

.025

-0.0

47*

0.06

517

.I

do

not

like

nei

ghb

ours

of

diff

eren

tre

ligi

on0.

030*

*-0

.011

0.15

4**

0.03

5-0

.057

*0.

028

Note

s:S

un

ni

and

Sh

i’it

ere

fers

,re

spec

tive

ly,

toth

esa

mp

leof

ind

ivid

ual

sfr

omp

red

omin

antl

yS

un

ni

cou

ntr

ies

and

the

sam

ple

of

ind

ivid

ual

sfr

omp

red

omin

antl

yS

hi’

ite

cou

ntr

ies.

Th

esy

mb

ols

**an

d*

mea

nth

atth

eco

effici

ent

isst

atis

tica

lly

sign

ifica

nt

at

the

1an

d5

per

cent

leve

l,re

spec

tivel

y.

116

dominantly Shi’ite countries.

The findings of this chapter are consistent with those of the previous chapters.

In chapter one, I find that higher levels of religious commitment map onto lower

degrees of openness, both internal and external. I also find that lower degrees

of internal openness and external cultural openness are associated with poor FDI

performance. In chapter two, the empirical findings suggest that higher levels of

religious intensity, measured by the belief in the importance of God and religion

in life, lead to lower rates of economic growth. The empirical results of this chap-

ter suggest that the negative attitudes towards the role of women in society and


influence of religion on economic growth works.

However, religion in predominantly Muslim countries (i.e. Sunni-majority

countries) is found to foster the type of attitudes that are believed to be con-

ducive to economic growth. In particular, religiosity is associated with confidence

in state institutions and the respect of law. Religion is also found to be associated

with pro-market attitudes.

The findings of this chapter suggest that religion in predominantly Muslim so-

cieties produces both type of attitudes: plausibly pro-growth attitudes and anti-

growth attitudes. The empirical findings of chapter two show that religion has a

deleterious effect on economic growth. This suggests that the anti-growth atti-

tudes outweigh the pro-growth attitudes. An interesting question, then, is whether

the conservative attitudes towards women and intolerance towards foreigners ac-

117

count for the entirety of the negative effect of religion on economic growth.

The “excessive enthusiasm” produced by religion about the market is another

plausible channel through which the negative influence of religion on growth works.

It is possible that a higher degree of state intervention is desirable in predomi-

nantly Muslim countries. The experience of the late-industrializing countries such

as South Korea and Singapore lends support to this argument. Studying the role of

the state in South Korea’s industrialization, Amsden (1992) argues that “[South]

Korea is evidence for the proposition that if and when late industrialization ar-

rives, the driving force behind it is a strong interventionist state.”1 According to

the data reported by the author, the growth rate of GNP of South Korea averaged

9.1 percent over a period of 17 years, starting in 1963–the year the state adopted

a planning strategy (Amsden, 1992). Similarly, Chew and Lee (1991) document

the heavy involvement of the state in the industrialization of the economy. The

authors observe that “[the] strong government backing, efforts by the [Economic

Development Board] to attract new industries and encourage expansion of estab-

lished ones bore fruits.”2 According to Singaporean statisticians, real GDP per

capita has increased by about three folds over a period of 17 years. It increased

from $1,400 in 1960 to $4,413 in 1977. In 2012, GDP per capita in Singapore stood

at $33,530. In other late-industrializing countries such as Japan and Taiwan the

state also played a central role in stimulating economic development (Amsden,

1992).

1Amsden (1992), p. 55.2Chew and Lee (1991), p. 192.

118

3.4.1 Attitudes in Islam and Christianity

Is the influence of religiosity in Muslim-majority countries different from its in-

fluence in predominantly Christian countries? Before proceeding, I should note

that in the following discussion I contrast the findings of Guiso et al. (2003) to my

own findings relative to the Sunni sample. Sunnis represent the majority of the

world’s Muslims (about 90 percent). Hence, in what follows Sunnis are referred

to as Muslims.

According to the findings of Guiso et al. (2003), in predominantly Christian

countries religiosity is strongly associated with negative views towards the role

of women in society. My findings, on the other hand, partly agree with those of

Guiso and his colleagues. In predominantly Muslim countries, while believing in

the importance of God and religion in life fosters conservatism towards women,

attending religious services is found to be associated with the opposite attitudes.

Religiosity (i.e. belief and attendance) in predominantly Christian countries en-

courages the formation of trust (Guiso et al., 2003), whereas it tends to encourage

distrust in predominantly Muslim countries. With respect to attitudes towards

immigrants and individuals from different backgrounds, my findings partly agree

with those of Guiso et al. (2003). Like in predominantly Christian countries, re-

ligious belief in Muslim-majority countries is found to foster intolerance towards

strangers. On the other hand, while temple attendance tends to be associated

with intolerance towards strangers in predominantly Christian countries, it is seen

to encourage the opposite attitude in Muslim-majority countries.

Guiso et al. (2003) find that religiosity in predominantly Christian countries

119

tends to encourage confidence in state institutions and the respect of law. In agree-

ment with these results, I find that religiosity in predominantly Muslim countries

has the same impact. With respect to the attitudes towards the market, athe-

ists in Muslim-majority countries, like their peers in Christian-majority countries,

tend to have anti-market attitudes. By contrast, individuals who believe that God

and religion are important in life tend to be in favour of more competition, and

think that larger income differences work as incentives. These results do not lend

support to the argument of Guiso et al. (2003) who conclude that Muslims tend

to have anti-market attitudes.

3.4.2 September 11 and Religiosity

Is religiosity stable over time? Barro and McCleary (2003) and McCleary and

Barro (2006) assume that religious behaviour is persistent over time and compile

their data on religious belief and attendance on the basis of that assumption. The

findings of the empirical literature, however, suggest that religious behaviour is

subject to change, depending on political and social circumstances. Studying the

religious behaviour of Iranians before and after 1979, Kazemipur and Rezaei (2003)

find that in pre-1979 Iran, the opposition to the secularization campaign took the

form of manifesting more religiosity. Later, however, the Iranians opposed the

Islamization of the state and the society (i.e. de-secularization) by expressing less

religiosity.

The attacks of September 11 is a major event that had serious repercussions

for Muslims. Ever since the attacks, Islamophobia has increased (Sheridan, 2006)

and Islam has been associated with terrorism and even fascism. Maalouf (1998)

120

argues that people tend to emphasize the dimension of their identity that they

feel is most threatened. According to this argument, one would expect Muslims

to be more religious after 2001.

The WVS dataset provides the opportunity to test for whether religiosity in

predominantly Muslim countries has increased after September 11. To test for

this hypothesis, I consider a sample of individuals from predominantly Muslim

countries who report Islam as their religion. Each country is observed once in

2000-2001, then once again in 2006-2008. The list of countries is reported in Ap-

pendix C. To control for the influence of September 11 on religious behaviour, a

dummy variable is generated. This variable takes the value 1 if the year is 2006-

2008, 0 if the year is 2000-2001. Five measures of religious behaviour are regressed

on the dummy September 11 and an array of variables controlling for individual

characteristics.

According to the results of the regression reported in Table (3.5), Muslims

are more religious after September 11. In particular, in 2006-2008 there are more

people who think that God and religion are important in life than in 2000-2001.

Moreover, there are more people attending religious services more than once a

week in 2006-2008 compared to 2000-2001. These results do not lend support to

the assumption of McCleary and Barro that religious behaviour is persistent over

time.

Economically, the increase in religiosity after September 11 might have nega-

tive consequences. In the previous chapters the empirical findings show that higher

121

levels of religiosity are associated with lower degrees of openness (internal and ex-

ternal), and that lower degrees of openness lead to lower levels of FDI. Results

also show that higher levels of religiosity map onto lower rates of economic growth,

suggesting a net negative influence of religion on economically relevant attitudes.

Hence, the increase in religiosity caused by September 11, ceteris paribus, could

plausibly mean that countries with substantial Muslim presence would become

even less attractive to FDI and their growth performance would worsen.

Table 3.5: September 11 and Selected Measures of Religious Behaviour

Religion is God is Once More thanAtheist important important a week once a week

State of health -0.074 0.013 0.065** 0.014 0.029*(0.070) (0.017) (0.016) (0.015) (0.015)

Gender (woman) -0.168 0.127** 0.106** -0.512** -0.747**(0.117) (0.028) (0.026) (0.024) (0.025)

Age -0.010* 0.004** 0.004** -0.001 0.012**(0.005) (0.001) (0.001) (0.001) (0.001)

Education -0.004 -0.057** -0.035** 0.000 -0.011*(0.029) (0.007) (0.006) (0.005) (0.006)

Income level 0.001 -0.027** -0.036** -0.003 -0.007(0.033) (0.008) (0.007) (0.006) (0.006)

September 11 -3.561 0.877** 0.974** 0.030 0.284**(223.594) (0.049) (0.052) (0.038) (0.039)

Pseudo-R2 0.160 0.088 0.055 0.074 0.122Number of observations 16,929 16,889 16,879 16,929 16,929

Notes: Ordered probit regressions. All regressions include dummies for countries and thesurvey year. The standard errors reported in parentheses. The symbols ** and * meanthat the coefficient is statistically significant at the 1 and 5 percent level, respectively.

122


This chapter has studied how different patterns of religious behaviour in predom-

inantly Muslim countries map onto economically relevant attitudes. Seventeen

variables measuring individual opinions and views on economic matters are re-

gressed on four measures of religious behaviour for a sample of individuals from

Sunni-majority countries. The exercise is replicated for a sample of individuals

from predominantly Shi’ite countries.

The empirical findings tentatively suggest that there are more similarities than

differences between the way religiosity influences attitudes in predominantly Sunni

countries and predominantly Shi’ite countries. Religious belief in predominantly

Muslim countries is found to encourage negative attitudes towards the role of

women in society. Religiosity tends to encourage distrust, and intolerance to-

wards immigrants and individuals from different religious and racial backgrounds.

On the other hand, religiosity is seen to foster confidence in state institutions and

the respect of law. It is also found to encourage pro-market attitudes.

The positive association between religion and conservative attitudes towards

women and intolerance towards immigrants and strangers found in this chapter is

consistent with my findings in the previous chapters. In chapter one, the empirical

results suggest that conservatism towards the role of women in society and less

openness to outsiders map onto poor FDI performance. The negative attitudes

towards women and intolerance towards strangers could also explain the negative

influence of religion on economic growth found in the second chapter of this dis-

sertation.

123

Nonetheless, religiosity is associated with the type of attitudes that are believed

to be conducive to growth. The results of the regression suggest that religiosity

tends to foster confidence in state institutions and the respect of law. More-

over, religiosity in predominantly Sunni countries is associated with pro-market

attitudes. My findings with respect to the attitudes towards the market are in

disagreement with Guiso et al. (2003) who find that Muslims are associated with

anti-competition and anti-market attitudes.

Although it is hard to conceive how the positive attitudes towards institu-

tions and legal regulations negatively affect economic growth, it is possible that

the pro-market attitudes have a negative influence on growth. All predominantly

Muslim countries are not industrialized and they are classified as developing by

international organization (e.g. United Nations). Thus, a higher degree of state

intervention is perhaps desirable. The experience of late-industrializing countries,

such as South Korea (Amsden, 1992) and Singapore (Chew and Lee, 1991), pro-

vides support to the state-intervention argument.

Finally, there is evidence that after the event of September 11 Muslims are more

religious. If more religiosity would map onto more conservatism towards women

and more intolerance towards strangers, then, ceteris paribus, one would expect

predominantly Muslim countries to be even less attractive to FDI. Moreover, since

countries with high levels of religiosity are associated with low rates of economic

growth, then September 11 by increasing religious intensity would lead to even

worse economic performance.

124

Conclusion

This dissertation has studied the influence of religiosity on macroeconomic per-

formance in countries with substantial Muslim presence. In chapter one I studied

the influence of religiously motivated attitudes on FDI. In chapter two I examined

the influence of religiosity, gauged by belief and attendance, on economic growth.

Chapter three looks at how different patterns of religious behaviour map onto

economically relevant attitudes.

Using instrumental variable techniques, in chapter one I show that countries

with higher degrees of openness towards foreigners and progressive views towards

women tend to be more attractive to foreign direct investors. In chapter two,

the empirical findings suggest that higher levels of religious intensity and atten-

dance are associated with lower rates of economic growth. In chapter three of the

dissertation, empirical findings tentatively suggest that in predominantly Muslim

countries religiosity is associated with conservative attitudes towards women and

intolerance towards strangers. By contrast, religiosity is seen to encourage confi-

dence in state institutions, and the respect of legal regulations. Also, I find that

religiosity in Muslim-majority countries tends to foster pro-market attitudes. This

result is in disagreement with Guiso et al. (2003) who conclude that Muslims have

125

anti-market attitudes. Finally, there is evidence that Muslims are more religious

after September 11. This result shows that religious expression is not stable over

time and that political and social events could have an influence on religious be-

haviour.

The findings of chapter three are consistent with those of chapters two and

three. Conservatism towards women and intolerance towards foreigners are found

to be positively associated with religiosity. In chapter one I show that these at-

titudes lead to lower FDI performance. The negative attitudes towards women

and people from different cultural backgrounds are also plausible channels through

which the negative influence of religion on economic growth works.

Another possible channel through which the deleterious effect of religion on

growth works is the “excessive enthusiasm” about the market. The experience of

the late-industrializing countries such as South Korea and Singapore suggests that

a higher degree of state intervention is desirable. Studying South Korea as a case

of a late-industrializing country, Amsden (1992) argues that “when late industri-

alization arrives, the driving force behind it is a strong interventionist state.”1

There are indications that ever since September 11, there is a feeling in predom-

inantly Muslim countries that Islam is targeted. Muslims have been associated

with terrorism and even fascism. Retaliating to the alleged attack, Muslims are

reportedly more religious. In agreement with the findings of the literature, I find

that Muslims are more religious after September 11.

1Amsden (1992), p. 55.

126

Given the negative influence of religiosity on economic performance suggested

by the findings of chapters two and three, the increase in religiosity caused by

September 11, ceteris paribus, could plausibly mean that countries with substan-

tial Muslim presence would become even less attractive to foreign investors, and

their performance in terms of economic growth would worsen.

To sum up, this dissertation has found that religion in countries with sub-

stantial Muslim presence negatively influences FDI performance by encouraging

negative attitudes towards the role of women in society, and intolerance towards

strangers. These attitudes, along with the “excessive enthusiasm” about the mar-

ket are plausible channels through which the negative influence of religion on

growth works. The increase of religiosity after September 11, ceteris paribus,

plausibly suggests that the economic performance, gauged by FDI and economic

growth, of countries with substantial Muslim presence would even worsen.

There are a number of interesting directions for future research. The findings of

this dissertation suggest that religious engagement in predominantly Muslim coun-

tries encourages negative attitudes towards the role of women in society. Hence,

an interesting question is whether this is specific to Islam. In other words, does

Islam intrinsically promote negative attitudes towards women? Another question

that follows is whether Islam differs in its views towards the role of women in

society from other religions such as Judaism and Catholicism where the sense of

orthodoxy is relatively strong.

127

In this dissertation I examined the influence of religion in countries with sub-

stantial Muslim presence on FDI and economic growth. It is interesting to extend

the investigation to other domains of economic activity. It is also interesting to

consider the influence of religion on bilateral economic activities such as bilateral

trade. Another interesting direction for future research is motivated by the politi-

cal changes taking place in a number of Arab countries. The wave of protests that

started in Tunisia towards the end of the year 2010 and spread out to other Arab

countries, brought conservative Islamist governments to power. The ultimate goal

of political Islam is the establishment of a society governed by the teachings of

Islam. One economic sector that might be affected is tourism. The question that

arises, then, is what would be the effect of the rise of political Islam on tourism.

My findings with respect to the relationship between free market and eco-

nomic development suggest that more research into the nature of the relationship

between the two is required. According to the mainstream view liberalized insti-

tutions along the lines of the Anglo-American model are the good institutions and

they are the root cause of good economic performance (Chang, 2011). In his paper

Chang (2011) challenges this view on theoretical and empirical grounds. For ex-

ample, he documents that rich countries performed better when institutions were

less liberalized. During the period from 1945 to the late 1970s “[the rich capitalist

countries] grew three to four times faster than during the period of classical liber-

alism (1820-1950) and twice faster than during the subsequent neo-liberal period

(1980–2009).”1

1Chang (2011), p. 484.

128

Appendices

129

Appendix A (Chapter 1)

The sample used in chapter two consists of 37 countries. Nineteen Arab countries,

10 Asian countries, 2 European countries, and 7 countries located in Sub-Saharan

Africa.

Table A1: The Sample of Countries

Arab Asian European Sub-Saharancountries countries countries Africa

Algeria Uzbekistan Albania ChadBahrain Azerbaijan Turkey GambiaComoros Bangladesh GuineaDjibouti Indonesia MaliEgypt Iran NigerJordan Kyrgyzstan SenegalKuwait Malaysia Sierra LeoneLebanon PakistanLibya TajikistanMauritania TurkmenistanMoroccoOmanSaudi ArabiaSudanSyriaTunisiaU.A. EmiratesYemen

Notes: The share of the population adhering to Islam in thesecountries is greater than 50 percent.

130

Table A2: Hausman Test

β α β − αIV GLS Difference

Internal openness 0.102 0.012 0.090External cultural openness 0.007 0.000 0.008GDP (logged) 0.218 0.309 -0.091Government consumption 0.052 0.035 0.017Trade openness 0.007 0.016 -0.009Infrastructure 0.062 0.044 0.018Health -0.008 0.007 -0.015Oil/gas exporter -0.579 -0.568 -0.011Democracy index -0.048 -0.072 0.024Muslim share -0.028 -0.038 0.010Arab country 1.190 1.177 0.013

Notes: β = consistent under H0 and H1; obtained from theG2SLS IV regression.α = inconsistent under H1, efficient under H0; obtainedfrom the GLS regression.Test: H0 = difference in coefficients not systematic.χ2(11) = 22.64, Prob > χ2 = 0.0199.

131

Table A3: First Stage of G2SLS IV Regression

Internal Externalopenness openness

GDP (logged) 0.926* -13.784**(0.537) (4.195)

Government consumption -0.061 -1.705*(0.099) (0.773)

Trade openness 0.052** 0.489**(0.015) (0.117)

Infrastructure -0.220* 1.374(0.100) (0.778)

Health 0.184** 0.165(0.029) (0.224)

Oil/gas exporter 2.600 -8.758(1.923) (15.016)

Democracy index -0.204 0.160(0.158) (1.231)

Muslim share 0.198 2.040(0.142) (1.107)

Arab country 0.921 -0.583(4.330) (33.816)

Ratio of cost line to borders -0.021 1.857**(0.044) (0.341)

State religion -3.540 61.012**(2.852) (22.272)

Distance from Mecca 0.000 -0.011*(0.001) (0.005)

Religious pluralism 13.015 149.578*(8.385) (65.482)

Sub-Saharan Africa 8.242 79.513*(5.079) (39.663)

Asia 0.771 -16.005(4.813) (37.584)

Arabian peninsula -9.516** 14.657(3.545) (27.682)

Wald χ2 86** 156**Number of observations 315 315

Notes: For space considerations, the coefficient on theintercept is not shown. The standard errors reportedin parentheses. The symbols ** and * mean that thecoefficient is statistically significant at the 1 and 5 per-cent level, respectively.

132

Appendix B (Chapter 2)

The sample used in chapter three consists of 27 countries. The geographical dis-

tribution of the countries is as follows: 5 Arab countries, 9 Asian countries, 6

countries are located in Europe, and 7 Sub-Saharan African countries.

Table B1: The Sample of Countries

Arab Asian European Sub-Saharancountries countries countries Africa

Algeria Azerbaijan Albania Burkina FasoEgypt Bangladesh Bulgaria EthiopiaJordan India Cyprus GhanaMorocco Indonesia Georgia MaliSaudi Arabia Iran Russia Nigeria

Kyrgyzstan Turkey TanzaniaMalaysia UgandaPakistanSingapore

Notes: The share of the population adhering to Islam in thesecountries ≥ 10 percent. Countries with a Muslim share of thepopulation of 50 percent or higher represent 63 percent of thesample.

133

Table B2: Religiosity and Economic Growth

Growth rate (1) (2) (3)

Intercept 10.343* 11.733** 10.966**(4.707) (4.169) (3.888)

Initial GDP per capita -1.384 -0.923 -0.862(0.819) (0.516) (0.509)

Investment 0.034 0.096 0.106(0.096) (0.060) (0.059)

Inflation -0.028** -0.030** -0.031**(0.006) (0.006) (0.005)

Trade openness 0.001 0 -0.003(0.011) (0.009) (0.010)

R&D 0.012 0.002 0.003(0.015) (0.005) (0.005)

Democracy index 0.147 0.01 -0.021(0.249) (0.123) (0.127)

Attendance (once a week) -0.065 -0.021 -0.008(0.049) (0.030) (0.031)

Belief Religious Religion is God isperson important important0.061 -0.059 -0.042

(0.093) (0.103) (0.041)

Muslim share 0.001 0.003 0.009(0.014) (0.014) (0.015)

Arab country 0.423 -0.109 0.015(1.596) (1.126) (1.122)

Wald χ2(10) 38.16** 52.35** 54.30**

Number of Observations 50 50 50Number of Countries 27 27 27

Notes: G2SLS IV regressions. The instrumented variables are theattendance and belief variables. The instruments are a dummyvariable for Soviet past; a measure of religious pluralism; the dis-tance in kilometres between the capital city and Mecca, SaudiArabia; dummy variables for the three geographic locations Asia,Europe, and Sub-Saharan Africa. The standard errors reported inparentheses. The symbols ** and * mean that the coefficient isstatistically significant at the 1 and 5 percent level, respectively.

134

Table B3: First Stage of G2SLS IV Regression

Attendance Religious Religion is God is(one a week) person important important

Intercept 66.399 71.915 39.647** 59.857(42.772) (60.525) (12.371) (38.803)

Initial GDP per capita -7.686 -1.940 -1.644 -1.074(5.477) (7.750) (1.584) (4.969)

Investment -0.481 0.623 0.246 0.321(0.508) (0.719) (0.147) (0.461)

Inflation 0.005 -0.008 -0.026* -0.035(0.037) (0.052) (0.011) (0.034)

Trade openness -0.114 0.006 0.000 -0.131(0.097) (0.137) (0.028) (0.088)

R & D 0.042 -0.133** -0.012 0.005(0.036) (0.051) (0.010) (0.033)

Democracy index -1.256 -3.275 -0.303 -1.252(1.295) (1.832) (0.374) (1.174)

Muslim share -0.041 -0.039 0.117** 0.273*(0.129) (0.182) (0.037) (0.117)

Arab country 36.426* 8.228 4.233 10.849(14.638) (20.714) (4.234) (13.280)

Distance from Mecca 0.003 0.000 0.000 0.000(0.002) (0.003) (0.001) (0.002)

Soviet past -31.466* -30.530 -17.469** -37.293**(13.196) (18.673) (3.817) (11.972)

Asia 39.790** 23.151 1.464 6.155(14.188) (20.077) (4.104) (12.871)

Europe 46.807* 38.532 6.394 4.917(22.171) (31.373) (6.413) (20.113)

Sub-Saharan Africa 69.846** 24.699 0.704 7.560(17.781) (25.162) (5.143) (16.132)

Religious pluralism -15.872 10.066 15.899* 24.933(23.770) (33.637) (6.875) (21.565)

Wald χ2(14) 134** 34** 206** 154**


Notes: The standard errors reported in parentheses. The symbols ** and *mean that the coefficient is statistically significant at the 1 and 5 percent level,respectively.

135

Table B4: G2SLS IV Regressionfor the Sub-Sample of Countries Observed Twice

Growth (1) (2) (3) (4)

Intercept -14.717* -11.263 18.221 26.576(5.785) (10.114) (25.565) (27.218)

Initial GDP per capita 2.215** 1.672 -1.001 -1.598(0.724) (0.964) (2.384) (2.404)

Investment 0.091 0.048 0.168 0.137(0.057) (0.089) (0.108) (0.080)

Inflation 0.114** 0.087* 0.047 -0.013(0.040) (0.042) (0.050) (0.083)

Trade openness -0.033** -0.028* 0.009 0.026(0.010) (0.012) (0.036) (0.042)

R&D -0.02 -0.005 0.006 0.012(0.019) (0.019) (0.020) (0.022)

Democracy index -0.051 0.026 -0.124 -0.205(0.115) (0.208) (0.144) (0.178)

Attendance (once a week) 0.033(0.017)

Belief Religious Religion is God isperson important important0.017 -0.098 -0.138

(0.036) (0.099) (0.111)

Muslim share -0.021 -0.004 -0.024 -0.011(0.013) (0.025) (0.017) (0.014)

Arab country 0.524 0.174 0.291 -0.377(0.784) (0.801) (0.843) (0.947)

Wald χ2(9) 41.05** 34.09** 32.30** 30.58**


Notes: The standard errors reported in parentheses. The symbols ** and* mean that the coefficient is statistically significant at the 1 and 5 percentlevel, respectively.

136

Table B5: G2SLS IV Regressionfor the Sub-Sample of Countries Observed Four Times

Growth (1) (2) (3) (4)

Intercept 18.703 1.297 -5.248 6.226(44.471) (15.728) (28.941) (15.392)

Initial GDP per capita -3.271 -0.99 -0.035 -1.583(6.182) (2.700) (4.194) (2.582)

Investment -0.121 -0.191 -0.189 -0.161(0.184) (0.166) (0.148) (0.133)

Inflation -0.025** -0.026** -0.024** -0.025**(0.005) (0.006) (0.006) (0.005)

Trade openness 0.109* 0.096 0.079 0.103(0.055) (0.063) (0.078) (0.055)

R&D -0.001 -0.005 -0.008 -0.004(0.030) (0.035) (0.031) (0.029)

Democracy index 1.576 1.706 1.413 1.633(0.813) (1.010) (1.009) (0.836)

Attendance (once a week) -0.073(0.247)

Religious Religion is God isBelief person important important

0.021 0.061 -0.001(0.044) (0.146) (0.047)

Muslim share 0.068 0.009 -0.026 0.028(0.148) (0.063) (0.133) (0.069)

Wald χ2(8) 71.17** 44.78** 60.22** 63.65**


Notes: The dummy Arab country is dropped from the regression because noneof the countries of the sub-sample is an Arab country. The standard errorsreported in parentheses. The symbols ** and * mean that the coefficient isstatistically significant at the 1 and 5 percent level, respectively.

137

Appendix C (Chapter 3)

The samples of individual observations used in chapter four are collected from 17

countries, three of them are predominantly Shi’ite and the rest are predominantly

Sunni. Table (C1), below, gives the list of the countries by dominant Islamic faith.

The symbol † indicates the countries from which the samples of individuals

are collected to study the influence of September 11 on religious behaviour in sub-

section (3.4.2) of this dissertation.

Table C1: Countries by Dominant Islamic Faith

Predominantly Sunni countries

Albania Egypt† Malaysia Saudi ArabiaAlgeria Indonesia† Mali Turkey†Bangladesh Jordan† Morocco†Burkina Faso Kyrgyzstan Pakistan

Predominantly Shi’ite countries

Azerbaijan Iran† Iraq

Notes: The share of the population adhering to Islam inthese countries higher than 50 percent.† Countries from which the samples of individuals used insub-section (4.4.2) are collected.

138

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